Ultimate Guide to Restaurant Customer Segmentation

February 29, 2024
Read Time: Example Minutes

Perhaps it’s not that surprising that personalization and segmentation are hot topics in restaurant marketing these days. After all, the better you understand your existing and potential customers, the more you can customize your communications and their experiences. The more you speak to what interests your guests, the easier it will be to convince them to get to know your restaurant better.

But, there are many different types of segmentation. So how do you know what’s the most effective one for your needs? This guide will help you learn everything you need to tackle restaurant customer segmentation with confidence.

What is customer segmentation?

Customer segmentation is also called guest segmentation, or more broadly, audience segmentation. Simply put, it’s dividing your guests into specific groups, so you can speak to them in a way that’s most likely to interest them. Much like being introduced to someone at a dinner party, finding common ground is the first step to building a worthwhile connection. Likewise, going into meticulous detail about an interest you have that they don’t share will get you labeled a bore. The same principles apply with segmentation.

How can segmentation help your restaurant business?

Even using simple segmentation strategies can have a huge effect on your bottom line. Not only will existing and potential customers be more interested in reading your communications (and more likely to act when they do), but segmentation will also decrease the cost of reaching them in the first place, increasing your ROI. That’s because broader targets are generally more expensive and less efficient than narrower targets.

In a recent Fishbowl case study¹, one national brand saw an increase from 4.56X ROI to 59.3X ROI simply by personalizing the type of burger featured in their annual promotion based on the guests’ past purchase history.

But that’s just a single case study. Looking more broadly, it’s been shown that personalized campaigns based on guest segmentation can increase revenue by 5-15% and reduce acquisition costs by up to 50%. And a recent McKinsey study found that companies that excel at personalization generate 40 percent more revenue from the same actions.

With these results in mind, the question isn’t whether your restaurant can afford to segment, it’s whether you can afford not to.

Better marketing is just the beginning.

Understanding your customers in a deeper way can help you ensure success in just about every aspect of your business. It can provide ideas to revamp your menu to better appeal to high-value customers; or a way to find a dedicated audience for your more niche dishes. Loyalty programs, staffing, training and even which suppliers you choose can all benefit from knowing what your guests value and what they don’t.

Plus, knowing your customers better can help ensure that you make the most of every decision you make. For instance, if your best guests value farm-to-table, but haven’t promoted local suppliers you already use, you’re missing the full benefit of your existing actions in terms of customer loyalty and retention.

What are the different types of customer segmentation restaurants can use?

The evolution of technology (like Fishbowl’s Delightable) has provided restaurants of any size the means to employ highly-sophisticated segmentation strategies. However, even simple segmentation tools can still provide excellent business results.

If you’re new to customer segmentation, it can be helpful to start with the basics, but choose a technology partner that will grow with you as your skills grow. While there are best practices to follow, every restaurant is unique, so testing and learning is essential.

The value of demographic segmentation for restaurants

Perhaps the best known and oldest form of segmentation is demographic segmentation, which defines an audience based on broad statistical data such as age, income, occupation, education, or household makeup. Even this basic form of segmentation can yield surprisingly sophisticated insights when used correctly.

For instance, if you’re noticing your business is dropping off earlier due to an aging customer base, you might use age-based segmentation to develop a late night menu that would appeal to younger audiences, and a targeted campaign to promote it.

If data tells you your best margins are coming from households in a certain income range, you can specifically target more of those customers through income-based targeting. Or if your best customers tend to be highly educated, perhaps a partnership with local alumni associations would serve you best.

Maybe you’re in an area that indexes highly for a particular profession. One option would be to try to increase your lunch crowd by specifically targeting members of that profession with a discount or by advertising through a professional association. Another would be to target your existing regulars that visit with their colleagues with an incentive to bring their families for dinner.

These are just a few of the myriad of tactics you can employ with demographic targeting. Once you understand what defines your existing restaurant customer base, it’s much easier to create strategies to maximize your existing relationships and develop new ones.

The value of geographic segmentation for restaurants

Customer segmentation based on geography is another simple tool that can be used effectively. A large chain might rely on geographic segmentation to create and promote menu items designed to appeal to certain regions. Or a local restaurant might use it to target a nearby neighborhood where a large percentage of their most profitable guests originates. However, those strategies are just the beginning.

Imagine a sports bar targeting neighborhoods that support a particular team in order to become the unofficial headquarters of that fan base. Or a local restaurant whose menu items and communications are specifically designed to celebrate and appeal to a variety of different local micro-neighborhoods.

Geographical targeting can even be used to target rivals on their home turf. One of the most famous geographic campaigns was Whopper Detour, where Burger King® geofenced every McDonald’s location in the US and rerouted potential McDonald’s customers to Burger King locations with a timely deal coupon sent to their mobile phones.

Spend a little time getting creative with geographic targeting, and you might be surprised at the results.

The value of behavioral segmentation for restaurants

Behavioral segmentation defines groups of people by what they do. This can include things like what dishes they order, the number of times they visit, what time of day they come, whether they eat in or order takeout, how and whether they interact with your loyalty program, and if they visit your website or interact on social media.

Much like the other types of segmenting, getting a deeper understanding of how your customers interact with your restaurant can boost your business in many ways. If you notice more customers are ordering vegetarian dishes, for instance, you could expand your vegetarian menu options or target those specific customers with a communication whenever you add a new vegetable dish to your menu.

Perhaps you want to increase the effectiveness of your loyalty program. Understanding which customers interact with it most could lead to a tiered approach with the most frequent visitors getting the best rewards.

If you know which customers are posting about you on social media, you can incentivize them with a free drink or appetizer. Or lure an occasional visitor more frequently by letting them know about a daily special that others with the same menu preferences enjoy.

Perhaps you notice that a significant group of people are visiting your site, but they never make it into your restaurant. If you understand where that disconnect is happening, you can target them with a campaign that may entice them to make a reservation.

In other words, behavioral segmenting helps you create strategies to alter the way your customers interact with you in order to create a more rewarding relationship.

The value of psychographic segmentation for restaurants

With the rise of online communities, there is a lot of weight to the argument that we have become much more defined by our interests, lifestyles, beliefs and hobbies than we are by traditional demographics. After all, if someone were to ask you what most encapsulates you, how would you respond? Most people would call themselves a fitness junkie or serial knitter rather than a 36 year old certified accountant.

Any psychologist will tell you that talking to people about what they are most passionate about is the easiest way to get their attention, and that’s where psychographic segmentation shines.

Imagine how you might respond if you found that a significant portion of your customers are deeply concerned about climate change and the environment. This knowledge might lead you to introduce and promote recycling and food waste initiatives, highlight your organic menu options, or showcase your lack of chemical additives through targeted communications. The options are endless.

Perhaps you discover there are a surprising number of pop culture aficionados within your audience. You might institute a weekly trivia event to bring in traffic on slow Sunday afternoons. Or offer sports enthusiasts a special incentive that changes depending on whether their team wins or loses as a way to instill loyalty and camaraderie throughout the season.

Fishing enthusiasts might appreciate a content series where your chef lets them in on his secrets for preparing whatever local catch is currently in season as a way to keep your restaurant top-of-mind. Again, there are virtually no limits to the interesting connections you can make when you learn what people are passionate about and use that information to find common ground.

How to get started using customer segmentation

Define your goals

Are you looking to get your feet wet before you invest in new technology? Hoping to solve a particular pain point? Want more high-ticket guests? Ready to optimize your business as a whole? Each of these goals will have different approaches and levels of commitment, so it’s important to think through how to begin and how much time and effort youcan devote to ensuring success.

Take stock of your potential data sources

If you’re looking to get started without investing in new technology, it’s important to have a thorough understanding of what your current systems can and can’t tell you. A good customer relationship management (CRM) system can fuel a demographic or geographic strategy, while a robust POS might give you enough information to tackle a behavioral campaign.

However, a psychographic approach will generally require a customer data platform (CDP) that is able to give you a more thorough picture of what existing and potential customers are interested in and which ones make the most sense to target for your bottom line.

And a Guest Relationship Management platform like Delightable can combine all your data sources to build the most robust guest profiles, and then employ smart segmentation to build lots of different audience segments.

Analyze your data

Now it’s time to dig into research. Let’s say your goal is to increase the number of large-ticket, highest lifetime value (LTV) guests. The next step is to define as much as you can about the current guests who spend the most with you, so you can formulate a plan to find more just like them.

Develop your segmentation database

Here is where you divide your highest paying guests into the different segments that seem to set them apart. Then you can easily compare and contrast the different groups to find the ones that deliver the most value.

Establish your tracking metrics

Developing key performance indicators (KPIs) for each potential goal is essential to ensuring that you have an accurate picture of how your initiatives are affecting your business. These KPIs can then be compared with the baseline group outlined in your initial segmentation group.

Test and learn

Now you’re ready to create specific campaigns for your top segments. It's best to do this with a small representative sample audience in the beginning, then optimize as you start to learn what is providing the best result.

Should you invest in customer segmentation software?

If you’re serious about using customer segmentation to grow your restaurant business, the right software can make all the difference. For most restaurants, customer data is siloed across a variety of systems (like POS, online ordering, reservations, social media, etc.), and it’s almost impossible to identify the same guest from one system to another. Even if you manually collate reports across platforms, it’s impossible to scale, and leads to a lot of inaccuracies and blind spots in your knowledge.

Depending on your challenges, the solution can be either a customer relationship management platform (CRM), and/or a customer data platform (CDP). CRMs give insights into the relationship between you and your customers, while a CDP can provide context to understanding guests and their actions outside of your restaurant.

A Better Way

For restaurants, there’s a better way: combining CRM and CDP onto a single platform, built exclusively for the restaurant industry: Delightable by Fishbowl combines the power of a CRM and the flexibility of a CDP into one intuitive ecosystem that gives an unparalleled understanding of your audience, and offers smart-segmentation so you can reach your customers at scale – with the right language, offers and timing to create meaning engagement and higher ROI.

Crafted by industry experts with more than two decades of experience in data, analytics, software and marketing for restaurants, Delightable the gold standard for any restaurant who wants an easy-to-use, all-in-one solution.

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Adam Ochstein
CEO
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