Mild, Medium, Hot: Chipotle Targets Repeat Customers With Its Rewards Program

By Markets Fool.com

On July 1, Chipotle Mexican Grill began its first rewards program, titled Chitopia Summer Rewards. While the promotion will run for three months, the chain's management hinted that something like it could become permanent, saying in apress release that:

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While Chiptopia Summer Rewards lasts just three months, we will be carefully listening to our customers and using what we learn as we consider the design of an ongoing rewards program.

This stands in stark contrast to the company's past stance on loyalty programs. Prior to its recent string of food-borne illness scares, management said that it had studied loyalty programs and didn't "believe the general supposition that loyalty will make less frequent customers more frequent."

Back then, chief financial officer John Hartung mentioned that the costs of implementing an ongoing loyalty program were prohibitive and would make profits tough to come by. Instead, he said, "What we've found is we've been able to build loyalty through more organic methods by encouraging people to learn more about Chipotle, by piquing their interest about how food is raised, by having them come into Chipotle and be treated to an extraordinary dining experience."

Oh, how times have changed

Image source: Chipotle Mexican Grill.

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Chipotle's rewards program is designed to encourage customers to make multiple visits in a month. Customers who register for the program in July will receive free chips and guacamole after they purchase their first entree. Then they get a free entree after their fourth, eighth, and 11th visit, as long as they spent at least $6 per visit. Finally, customers' status will elevate to either Mild, Medium, or Hot, each of which comes with a reward. And if customers hit the required number of visits for all three months of the program, they get the following additional rewards:

Reward Status

No. of Monthly Visits

Reward

Mild

4

Free entree

Medium

8

$20 in Chipotle merchandise

Hot

11

Free catering for 20 people

Going after the catering business

Image source: Chipotle Mexican Grill.

Chipotle is looking to win back the catering customer by way of its most loyal customers. It will take a minimum of 33 visits to achieve "Hot" status over the entire summer and qualify for a catering bonus. However, this customer will also be the most passionate when vouching for Chipotle -- and will also probably become the most popular guy at work.

A couple of months ago, I wrote about how Chipotle should focus its free-food giveaways to catering customers. It would be an efficient way to get rice, beans, and barbacoa into the mouths of thousands of customers without the need to send out 21 million coupons.

The challenge of targeting office managers and receptionists to place an order for their teams is the likely backlash that will come from those who aren't yet ready to forgive Chipotle. I found out firsthand that there's still resistance out there, after getting a wayward glance from my wife when I proposed catering from Chipotle for one of our children's birthday parties.

Keep it simple

The rewards program is a shrewd and necessary move to try to rebuild loyalty at Chipotle's restaurants. However, when it's time to implement a more permanent rewards program, I suspect Chipotle will need to make some tweaks.

For example, I tried to simplify the description of the rewards program as much as possible, but when looking at the details Chipotle provided, it's rather complex. A quick look at the press release from Chipotle shows that the program has nine different bullet points when explaining the program. That number could be cut in half to make the program simpler for customers to understand.

Many customers will probably learn of the rewards program when visiting Chipotle. I can already picture lines slowing as confusion builds while employees explain it. A typical pitch at the cash register might go like this:

In order to receive rewards you will have to get a Chitopia card, spend at least $6 per visit, and make multiple visits to achieve different levels of status. At four visits, you reach Mild status. At eight, you are considered Medium. At 11, you get Hot. At each level you receive one free entree, and your free entree visit is considered a visit. At the end of each month, your visit total resets to zero and multiple visits in one day only count as one visit. If you achieve Mild status all three months, you get another free entree. If you achieve Medium...

You can see where this is going. With my attention span, I'll probably stop listening at "get a Chitopia card." I imagine many are in the same boat.

Once a permanent rewards program begins, Chipotle will have to make sure customers can easily understand the rewards program. It will also achieve greater success if the customer can maintain that program on a mobile device rather than have to carry another card in a wallet or purse. Nevertheless, Chipotle Summer Rewards is a good start in getting customers to return more consistently.

The article Mild, Medium, Hot: Chipotle Targets Repeat Customers With Its Rewards Program originally appeared on Fool.com.

Palbir Nijjar has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.