Why McDonald’s Is Working On A Loyalty Program?
Reports suggest that McDonald’s (NYSE:MCD) is developing a loyalty program in the U.S. that will be launched later this year or in early 2017, building further on its new smartphone app. The company’s mobile phone app was launched late last year and already has 10 million downloads. McDonald’s has lagged behind competitors (including Starbucks and Dunkin Donuts) in digital initiatives and rewards programs, but its turnaround initiatives appear to be aimed at addressing these issues. Starbucks already has more than 11 million members enrolled in its loyalty program and Dunkin Donuts has around 4 million members, indicating that McDonald’s has a lot of catching up to do. The company is working to improve the customer experience and provide more personalized service. A rewards program will increase customer loyalty and repeat sales, along with providing the company with a direct communication channel with customers. This additionally will generate additional data, allowing the company to better channel its offering to its consumers.
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Strong Customer Relationship Can Improve Sales
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As a part of its digital transformation McDonald’s is now investing in technology and using digital innovations to meet its goal of moving from mass dmarketing to mass personalization. The company is looking at increasing its one to one interaction with customers and the loyalty program will act as an enabler for this goal. McDonald’s can use the data to understand customer behavior and preferences and lure customers back into restaurants if they have been absent for a while. The company believes that its loyalty program will be the future of its customer relationship management and can be a significant sales generator for McDonald’s. As the company works on its turnaround strategy, it should benefit in three major ways through its loyalty program: 1) build a strong relationship with its customers and have better data to gather insights on customer behavior and preferences; 2) compete better with players, such as Starbucks and Dunkin Donuts, who already have loyalty programs running; and, 3) increase sales and encourage repeat visits.
As per our estimate, the average spend per customer visit at McDonald’s company operated restaurants will remain steady at slightly below $4.00 over our forecast period. There can be an upside to our price estimate if the average increases in future.
As McDonald’s works on its turnaround strategy, some of its key initiatives such as All Day Breakfast have been successful in driving revenue growth. We believe its technology initiatives and the loyalty program should help the company build stronger relationships with its customers and improve its offerings through customer feedback. In the long term, these initiatives should translate into higher sales for the company.
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