Lovin’ It: Why now is the perfect time for McDonald’s to launch a loyalty program

Reading the Wall Street Journal the other morning over a cup of McDonald’s coffee—yes, McDonald’s, not Starbucks—I was struck but not surprised by the sales strides of the very chain that had just sold me the latte. The QSR’s 2009 Q4 comparable sales increased another 3.8% versus the same quarter in 2008, which in turn builds on their amazing 7.2% same-store sales growth the previous year (Q4 2008 versus Q4 2007).

In such a turbulent economy, that success should be revered, even though the turbulence itself is fueling a good portion of that growth. Like many other value brands, McDonald’s success in growing sales reflects customers struggling to stretch limited budgets a bit further with lower-priced options. And we see clear demonstrations of customers shifting hard-earned dollars to more affordable alternatives in the recent financial performance of Family Dollar, Walmart and Dunkin’ Donuts.

But what struck me even more than those remarkable numbers is that the growth illuminates a fantastic opportunity for the likes of McDonald’s. Millions of customers returning to the golden arches provide a unique opportunity to create a competitive advantage that will be sustained long after the economy returns to normal. McDonald’s should launch a chain-wide loyalty program to sustain this success because, simply put, a loyalty program is about identifying and understanding individual customers.

While I know that the value brands are capitalizing on delivering lower prices through no-frills operations, let’s not forget that the fundamentals of the Pareto Principle still apply: a minority of customers generate most of a company’s revenues. Some of those new and returning customers spend a lot more than others, and therefore drive much more profit to McDonald’s bottom line. And when the economy improves and a half dollar is not such a painful hit to your customers’ wallets, where will those profitable customers go? Back to Starbucks to get their coffee?

Launching a well-crafted loyalty strategy will engage customers in a value exchange that takes the first step in creating a relationship that transcends price. And creating benefits that entice customers to opt in to have their purchases be continually tracked and rewarded has clear payoff: You get visibility into customers’ individual value to the brand, you instill in customers a sense of equity in continuing to do business with you, and, if your program is compelling enough, you may even glean insights about your customers that go well beyond what they are and aren’t buying from you.

For instance, in the case of McDonald’s, who are those customers who created a surge in your revenues for the last two years? Who are those two million additional customers McDonald’s now serves each day over last year? How does the chain entice them back? And, most important, which of them does the chain really want back?

As well, part of McDonald’s stated “Plan to Win” strategy includes expanding their menus with varieties of coffee, snacks and more breakfast items. Understanding best-customer purchase habits will reveal additional insights into which upgrades are satisfying their most-profitable diners. And knowing which items please those best customers will help evaluate what to keep on the menu. Before discontinuing an item that delivers low ROI, for instance, customer analysis might reveal that the item is popular among best customers, who in turn drive revenue volume throughout the rest of the menu. Taking that item away might, therefore, impact other profitable sales.

Without the insight provided by the database that a loyalty program can help build, McDonald’s options may be limited to further eroding margins through additional price cuts. What a grand opportunity lies ahead for the McDonald’s empire and the many other price-dominated brands. As their sales continue to rise during these challenging times, they are only one loyalty program away from turning these short-term gains into a sustainable benefit for many years to come.

Yes, it’s natural to be a bit skeptical about how price-conscious customers might perceive the concept of rewards and recognition. But a lot of people were also skeptical when McDonald’s expanded their menu to include lattes, cappuccinos and other upscale coffee drinks, now served in 7,000 locations and apparently performing acceptably well. When the Journal asked McDonald’s chief executive Jim Skinner about such seemingly extravagant products, the attitude of his response also spoke directly to the goals of loyalty marketing: “You have to remember that everything we do at McDonald’s is for the long term.”