Chipotle / Loyalty

On Twitter, I mentioned that Chipotle has come back from the dead and is hummin' these days. The brand grew by more than 45% in the past four years.

One of our loyal readers mentioned (and I'm paraphrasing here for effect) that "They rolled out a loyalty program, Kevin". The reader understands my distain for modern marketing theory.

If you go back to my now out-of-print Merchandise Forensics book from 2007, you'll see that I categorized brands into three bands back then.

• Acquisition Mode:  Rebuy Rates between 0% and 40%.
• Hybrid Mode:  Rebuy Rates between 40% and 60%.
• Loyalty Model:  Rebuy Rates between 60% and 100%.

If your annual rebuy rate is > 60%, your business operates in the realm of Loyalty. These brands frequently possess twelve-month buyers who have a 70% chance of buying again next year and possess customers who purchase 7 times a year, on average (your mileage will vary). If this brand starts a loyalty program and the program increases order frequency by 10%, you add 0.7 purchases per year. That's a big deal.

If your annual rebuy rate is < 40%, your business operates in the realm of Acquisition. These brands frequently possess twelve-month buyers who have a 30% chance of buying again next year and possess customers who purchase 1.5 times per year, on average (your mileage will vary). If this brand starts a loyalty program and the program increases order frequency by 10%, you add 0.15 purchases per year. That has no impact on your business.

You must know if your business is in Acquisition Mode, Hybrid Mode, or Loyalty Mode.

The mistake made by vendors in our industry is that they push Loyalty solutions on brands that operate in Acquisition Mode. It's profitable for the vendor. It's foolish for the brand to accept Loyalty solutions. Go find another new customer profitably.