In the first of our two-part series on incentives, we discussed how price plays into the Price x Quantity = Revenue formula.
Just as the Price aspect of the equation has two “levers”—Average Price Per Item multiplied by the Number of Items Per Ticket or bundle—so does the Quantity portion. The two levers of the Quantity aspect are: Average Frequency of Visitation multiplied by Total Audience Size.
The Price x Quantity = Revenue formula serves as a framework for marketers to develop marketing plans that ultimately increase revenue. The Price and Quantity inputs each make up half of the equation; therefore, understanding how both aspects play into operations is critical to increasing revenue.
Quantity in terms of restaurants is generally referred to as guest traffic or traffic counts. Check average per guest times the number of guests equals total revenue. Naturally, the more guests who patronize the business, the more revenue will increase. Price also influences quantity to some extent, however. For example, operators must determine if a one percent increase in price would lead to a greater than one percent decrease in quantity. If this happens, the restaurant’s revenue actually decreases.
The first quantity lever, Frequency, is aimed at encouraging guests to visit a restaurant more often. If they visit two times per week, for example, the goal is to incentivize them to visit three times per week.
“Many operators are leaning into frequency at the moment because it is less expensive to drive an incremental visit than to acquire new customers,” says Peter Boivin, vice president and head of industry, restaurants, at Vericast. “However, they need to remember that there are never enough customers to not have to think about acquisition. People move, or other competitors steal your customers. You have to have a plan for always acquiring new customers.”
The pandemic forced a rush to digital ordering and loyalty programs, paving the way for restaurant apps and mobile ordering, where loyalty programs flourished. A brand’s most loyal guests can be highly influenced via these digital loyalty offerings, yet loyalty should not be confused with acquisition. While it is true that loyalty drives frequency of visitation, it doesn’t grow the size of the customer base.
Restaurant operators tend to lean toward enticing their most frequent guests to spend more money, but there is a breaking point where the consumer can only come so often. Wise operators find a balance between pricing and driving traffic through acquiring new guests. So how do operators reach guests who don’t sign up for app-based loyalty programs? That’s where loyalty—or rather, the lack of it—plays into the second factor of the quantity component: Total Size of Audience.
“Brands often forget how they actually started, which was acquiring guests from other brands,” Boivin says. “Third-party lists, billboards, print, television, radio, direct mail, programmatic digital, and other traditional forms of advertising—those are the acquisition vehicles that drive non-customers and less-loyal customers into your restaurant.”
In such a digitally oriented age, it can be easy to forget how well these traditional forms of marketing work. Foot traffic studies conducted by Cuebiq show that on average, 61 percent of homes that receive and use direct mail coupons have not patronized that brand in the prior 60 days.
Vericast’s formula demonstrates that an effective and efficient marketing program should use all four levers—Average Price Per Item, Number of Items Per Ticket, Average Frequency of Visitation, and Total Audience Size—to drive increased revenue.
“Along with the price levers, driving frequency and new customer acquisition that can continue your consistent growth over the long term is the goal,” Boivin says.
To learn more visit the Vericast website.
