Episode 9: The Importance of Loyalty Programs for Restaurants with Matt Doka of Fivestars

Episode 9: The Importance of Loyalty Programs for Restaurants with Matt Doka of Fivestars

Jun 24, 2024

Summary

Matt Doka, co-founder and CTO of Fivestars, shares the story of how Fivestars started and the importance of loyalty programs for small businesses. He discusses the shift from just having a loyalty program to creating a comprehensive life cycle communication platform that turns transactions into relationships. Matt emphasizes the effectiveness of text and mobile push notifications compared to email and the importance of choosing the right partners in the industry. He also provides advice for small restaurant owners and encourages them to leverage their partners to grow their businesses.

Takeaways

  • Loyalty programs are important for small businesses as they help turn transactions into relationships and increase revenue.

  • A comprehensive life cycle communication platform that includes text and mobile push notifications is more effective than just having a loyalty program.

  • Choosing the right partners, such as payment processors and marketing providers, is crucial for the success of a small business.

  • Text and mobile push notifications have higher conversion rates compared to email.

  • Small restaurant owners should ask questions and leverage their partners to get the most value out of their marketing efforts.

Transcript

Shane Murphy (00:02.094)

Welcome back everybody. Today we are joined by Matt Doca, the co -founder and CTO of Fivestars, which is a loyalty program which has had over 30 million people get rewarded at over 12 ,000 local businesses. And they've driven over $2 billion in transactions throughout their network. Also the word on the street is that Matt grill's a killer steak. And Matt has been super, super helpful through the years for people like me who are in the industry and always trying to level up our game. So I've appreciated Matt and all that he's done for not only me, but the industry as a whole. Matt, thank you so much for joining and sharing your knowledge and experiences with the audience here.

Matt Doka (00:47.344)

Thanks Shane, happy to be here. Looking forward to the conversation.

Shane Murphy (00:51.246)

Well, maybe before we just dive in, can you tell us more about your background as well as the story of Fivestars and how it all got started?

Matt Doka (01:01.488)

Sure, sure. So I grew up in a border town. I was born in El Paso, Texas and both of my parents were doctors.

and did a lot of work with their careers doing volunteer work and mission work south of the border. And as a kid growing up, you know, we were brought along for the journey, me and my brother. And as much as I loved seeing and kind of growing up and taking in that example of how to use your careers to have an impact on people, I hated biology. Too much memorization, not enough math. Don't tell my parents that, but I decided instead I was going to study engineering, no medicine for me, did engineering and finance at Penn. And the first part of my work journey was

trying to find a career I liked and where I could do what my parents were doing. So my first job was at a hedge fund. It was very intellectually interesting and zero missional impact of any kind. I mean, maybe we made some foundations, more money that maybe they gave to good causes, but not this sort of tangible thing that my parents, I saw my parents really model for me and my brother when we were kids. I tried, so the next thing I tried was investment banking. That was also not exactly the first time.

the most impactful thing. And I met a friend who, after my summer in banking, I had a friend who was at McKinsey, actually two friends, Steve Leisner and Jesse Poojee, and Jesse's actually gone on to be an entrepreneur as well and kind of paved the way in a lot of ways for me. And they both were at McKinsey and said, hey look, there's this program here, if you do it, you do your two years in consulting, you can go volunteer with your consulting skills in a developing country. And I said, well, that sounds really great. Sure, let's try for McKinsey, like only the number one consultant.

consulting firm, but I rolled up my sleeves and tried really hard and got in. And so when I graduated, I went to McKinsey's New York office. I did my two years there and met my co -founder, or guy who eventually became my co -founder for Fivestars, Victor Ho. We met there, decided we didn't want to make slides for a living, wanted to build something that was making an impact. He had a similar vision for having an impact with his career. We wanted to do something around communities. And we weren't, we were probably more on the

Matt Doka (03:09.01)

business finance side than the like really cool social network side. So we decided to focus on small business and those commerce communities and not like the Facebook communities that are maybe a little cooler than we were. That was really the vision behind Fivestars was building technology that would help connect people and businesses more closely together. And the US businesses and particularly small businesses with a lifeblood of the American economy and of American communities. And 200 years ago, 100 years ago even, they were

were also the lifeblood of social life. You had credit, you had relationships, it was the place of a city or a town was the general store or the restaurant or whatever. That's changed a lot. It's still the lifeblood of our economy, but not so much the social lifeblood. And so we wanted to build Fivestars around.

software that would bring both of those elements together, helping businesses to thrive, but also the communities around them to thrive and to turn transactions into relationships. We got into Y Combinator, which was an amazing journey, really early on. And it was really right around, right before that time, actually, I did get the chance to go volunteer in a developing country. I went to Uganda for five months, which was an incredible experience, which I'm grateful to this day that McKinsey provided me, but landed, I think it was my interview with Y Combinator.

Y Combinator was like a week after I landed. It's a bit of culture shock I was dealing with, but we hit the ground running and 13 years later, here we are still powering CRM, CDP, customer identity and loyalty in small businesses around not just the US now, but also UK, Honduras we're launching next month and Canada we're in RAD and Puerto Rico is not really a different country, but there's a lot of regulations that are different there and we're live there as well.

So it's been a great journey. It took a lot longer to achieve some of these milestones than we thought when we were young, naive and optimistic. But it's been a good one and happy to share whatever I can from it today.

Shane Murphy (05:13.486)

That's amazing. I love that. It always does tend to take longer than we start out thinking. And thank goodness, because if we knew how long it would take upfront, we might not have started in the beginning. But that's awesome. I love hearing that background and story and how you guys got into that. Maybe I'm curious, were there any specific problems or issues that you were observing with

these small businesses that led to like down the loyalty path in creating these. How do we connect consumers and businesses and turn those transactions into relationships?

Matt Doka (05:56.336)

So good question. I think our anecdote from living in New York for two years was that even though we frequented places constantly like the neighborhood coffee shop, the neighborhood restaurant, we were not only were we a nameless face, but when we didn't show up or when we finally moved, no one had any idea. And all of the small business owners we talked to,

Shane Murphy (06:17.134)

Yeah.

Matt Doka (06:21.456)

know some regulars, have a sense that regulars are an important part of their business, but regular or not, they have no way to reach somebody out of the store. They don't know how often that person's coming in and they can't communicate with their most important clients or even any of their clients really effectively for that matter, maybe with the exception of some posts on Facebook.

Maybe an Instagram here and there. But when you think about your close friends that you communicate with, you're communicating over text. Sometimes you're using WhatsApp like mobile push. You're rarely sending email and you're especially not hoping your friends just see a, I mean maybe some acquaintances see a post, but you're using that to make people jealous. You're not actually making things happen through those communications. And so we wanted to bring the ability to know and talk to your customers and engage with them, not just when they're in the store.

but especially when they're out of it or when they have gotten out of the habit of coming back to every small business in America.

and the most powerful examples of this already were emerging at that time. You had Sephora had an incredible loyalty program they built. Unfortunately, it was on email and that was not actually, it turned out to be a little culturally insensitive and we studied this with McKinsey. It's like very hard for some cultures to understand the email addresses of other cultures because names are complicated. We live in a wonderfully, you know, multi pluralistic society, but that's tricky. So what's easier?

What's easier than an email and a name is phone number. Everybody's got a phone number. And so that was really the key behind what we did. And we drew a lot of inspiration from Sephora, drew a lot of inspiration from another client of ours, Starbucks. And we wanted to take that technology and make it available for the little guys so they could build these big databases. And not just have this list and boring analytics, but actually bring people back in more frequently and recover lost customers. People who've just gotten out of the habit of going in or maybe had some issues.

Matt Doka (08:24.61)

they need to talk about, whatever it is, we start that conversation going for them automatically without any work and get those folks coming back in.

Shane Murphy (08:34.158)

Yeah, so you touched on this lightly and I'd love to explore a little deeper, but like at its root, why is it so important that these restaurants have a loyalty program and what sort of impact does that have on them from a revenue standpoint? Like it's easy to know, hey, I need to have this relationship with my customers, but in a small business, you're...

Matt Doka (08:58.448)

Sure.

Shane Murphy (09:01.582)

often you're trying to survive. You're trying to get through to the next week and the next month. And sometimes it's hard to pause and really realize, hey, what is the business impact of investing in this type of experience?

Matt Doka (09:18.)

So one thing I think is really important to note, there's a lot of, and for all the restaurant owners listening out there, there are a lot of loyalty programs out there. Bar none, they're mediocre. And for the first six months of our life as a company, 12 months really, let's be honest, we only offer just a loyalty program where we're tracking numbers, giving people points.

We always had the vision of turning it into a life cycle communication platform where a piece of that is the loyalty program. But the real value comes from all the connecting and communicating you can do and that we do automatically with your customers on top of the data. Because if you're just collecting loyalty data and giving people points, they do come in maybe 10 % more often. We've looked at the numbers. It's a little hard to prove statistically, but we see five to 10.

times the ROI of that from the communication that we're able to automate and that's where the real value comes in not just for the merchant who wants to build a thriving business but for customers who you know are making decisions every day about where to shop where to purchase they want value they want to feel a part of somewhere they want familiarity that it's a great win -win and that's where the value really comes from is the life cycle marketing not the loyalty.

Shane Murphy (10:34.606)

I think that that's an important one. A lot of restaurant operators don't realize the difference between having a loyalty program and having like a marketing program, whether that's through SMS or like Fivestars, there's a lot of like push notifications in addition to SMS as well. And that distinction is crucial. Maybe can you touch on that? Why is it such a wide difference between...

I'm tracking points and people might be coming because I have some points or rewards on the horizon versus that marketing side that comes from that life cycle communication.

Matt Doka (11:16.016)

I think there's two major differences. One is the way you think about the communication. So, loyalties, well, we're all familiar with loyalty. Many of us, myself included, love, pay by 10, get one free. But the...

The thinking is all on the customer to track, remember, take action on. Maybe you get a reminder here and there, but it's a very proactive type of engagement with a merchant, where it's still on you to remember and do an act.

Well, we don't take that away, right? Obviously, a key, you know, one of the components of the life cycle marketing system we provide is loyalty. On top of that, we add pull marketing where instead of the customer taking initiative work, we're also using all the data that we learn about the customer, their preferences and how often they're coming and we're not coming to also proactively pull them in to reach out to them and bring them back. And you get a lot more when you're doing both.

both, then when you're just doing one, when you're just doing push, great, or when somebody's, you're relying on the person to have the initiative, it just reaches a lot less people. And if that person's not aware or part of that already, then it's creepy when you just get reached out randomly. I mean, we all get the text like, hey, are you looking for a job from some random recruiter or?

Shane Murphy (12:32.686)

Yeah.

Shane Murphy (12:37.678)

Totally.

Matt Doka (12:38.576)

There's a lot of strange random texts people get these days too that I think resonate as also you can't just do that. So I think the whole, I think putting both together in an experience for the consumer creates a much better, more normal relationship between them and the merchant.

Shane Murphy (12:56.174)

I love that. And you know, you've obviously been largely on like the product side for the entire life cycle of Fivestars, which I imagine you've kind of been talking about how the product has shifted and that vision has come into this full life cycle communication platform instead of just being just a like point tracking loyalty provider.

Matt Doka (13:21.296)

Sure.

Shane Murphy (13:25.55)

Have there been...

How have you gone about testing the consumer's response as you've layered in different types of communication and tried different strategies in the communication? I've interfaced with Fivestar as a consumer several times with several different businesses in my local community. So I've seen everything from the buy one get ones to like the 10 % off or the flash sales of, hey,

Matt Doka (13:47.888)

Okay.

Good.

Shane Murphy (13:58.19)

I'm a bakery and we're gonna be closing in two hours, so here's a flash sale. I imagine there have been a lot of tests to identify what works and what works best so that you can apply that across your network. Can you maybe share some of how you went about that and some of the learnings that came through that type of testing?

Matt Doka (14:21.904)

Absolutely, so I'll state some of the obvious stuff first. So anyone who's done marketing or anyone who sits down and thinks about this probably won't surprise you. So I give that disclaimer. I'm not going to take too much credit for this brilliance. But one obvious thing.

We have two kinds of messages, right? You have your flash promotion, sales, things that a merchant wants to communicate to a segment or an entire customer base. And then we have a second audit, the automated messaging category that's based on where our customer is in their specific lifecycle journey. The more personalized one has a much higher return rate, typically is only going out one person, you know, to that specific person. So the most volume in our network comes from the push messages, but the most conversions come from the automation.

So we recommend doing both and we try to provide content and guidance to merchants both through our account management team as well as through our own internal, you know, user marketing. Here's these key events coming up, Father's Day, Mother's Day, Easter, Christmas, whatever it is to help folks think about how do I do push promotion as effectively as possible in addition to all this life cycle stuff we have running. I think...

The second probably very obvious thing is it does depend on what vertical you're in. The things that you would say and message and offer and engage with customers at an oil change, we've got a lot of oil change places, is different than at a boba shop, different than at a coffee shop or a sit down restaurant or a dog groomer. And so it is vertical dependent. At this point, Fivestars has seen hundreds of businesses and thousands of promotions and automations in every vertical. So we're generally able to be

a smart, helpful advisor as a merchant as we sort of co -develop or think through that program with a merchant and when they want to tailor it to hop on the phone with us and think about what adjustments to make. But it should be obvious that that's different. What's a little less obvious? All of us in the business world probably receive hundreds of emails, both on our personal Gmail's and our business Gmail's. Occasionally, we receive texts. Half the time it's from sketchy,

Matt Doka (16:38.96)

foreign texters these days. The other half of the time it's a really nauseating experience from some obviously kind of commercial spam.

And I think so what will surprise listeners is that our text and mobile push is four to five times more effective than email. And this was surprising to me, right? I got tons of email my whole life trying to get me to do something and rarely did I receive effective texts, but we've done so much work both on the customer experience and in the U .S. you have to do a lot of work on the compliance side. So we handle all the compliance for our merchants as well. But that actually we see four to five times higher conversion rates from our text.

and push that we do from email and so you know very much recommend

working with an omni -channel provider like us when you're doing lifecycle communications, not just a marketo that does, that really focuses on email, or a braze that only focuses on text. So, you know, omni -channel helps because customers at the end of the day do still want to be able to pick between the three and you've got some flexibility to test and experiment. And make sure you work with a compliant one because we've seen a lot of lawsuits in the US about folks who are not compliant with, or working with providers who are not compliant with text regulations.

And that can be pretty expensive, like hundreds of thousands of dollars expensive for non -compliance.

Shane Murphy (18:05.23)

Certainly, yeah, absolutely. Now, these are a lot of great, like really actionable things that we've discussed. Like we've talked about the difference between just having a loyalty program itself and a life cycle marketing communication, how that shifts when you add in like text and mobile push in addition to email and the like...

flash messages versus the automated, like, individualized messaging based on someone's behavior. These are a lot of tools that will allow people to just stack and stack and stack higher conversion rates down the funnel, which is so awesome. One thing that, we'll go ahead and.

Matt Doka (18:52.72)

And you know, I do want to, let me just pause you there because.

There's a lot of operators and also folks who are helping restaurant operators, whether you're in payments or food supply, what have you, helping this industry. And I want to be really specific on what you should expect from a vendor like us, like a platform like us. So if you're in automotive with like one of the key metrics of success is in that first month, how many people are signed up a good platform in automotive, at least 500 in restaurant, a thousand or fast casual, a thousand retail one to two thousand.

Shane Murphy (19:10.83)

That's awesome.

Matt Doka (19:26.242)

And you should see numbers like that for at least the first two to three months building a massive base. Our best quick service restaurants have 20 to 30 ,000 people in their databases and are still slowly growing that as their communities grow. You should see at least a 10%, not just open rates, like you'll hear email providers try to pitch you on how great their open rates are and their open rate tracking. We see 8 % to 15 % visit rates from our automation.

That's not like, you know, so you think about when somebody's talking about an open rate, that 30%, you know, 70 % don't even open the email and does, out of the 30 % that do, do they even come to the store? So you wanna see those kinds of results before you pay somebody in 100, 200, 300, 400 a month to run a platform like this for you or else you're not getting the ROI that you deserve.

Shane Murphy (20:17.39)

That's I think one of the crucial things where a lot of restaurant operators have tried so many different things through the years and they all cost in that like 100 to 500 dollar range each and most of them are very time intensive to launch and to start and the operator, you know isn't a marketing expert so they don't know how to launch it themselves and eventually it fizzles out after a few months, but I think that's crucial one of the first things you can look for is a

How is my database growing? But it's not just how big is the database, it's what happens after that? Are they actually coming in and transacting? What I love about Fivestar's mission is it's about turning transactions into relationships and you don't get the relationship if people aren't coming and interacting with the brand.

It's not enough to just have someone's phone number sitting in a database. You have to do something with that. You have to connect with that customer and cause them to come in. And that's what I love about what you just highlighted is it's not just open rates. It's not just a database. It's about visit rates and growth. That's awesome.

Now, we've obviously talked about a lot of different things. If you were speaking to a small restaurant owner who is maybe even just starting their brand or they're getting ready to grow their business after having not done marketing for a long time, do you have any closing advice for that type of op?

operator before we wrap up today.

Matt Doka (22:04.88)

You know, I think choose your partners well, your payment partner, your marketing partners, they're gonna give you the ideas that make sense for your industry and your community, in addition to the ones you're hopefully bringing to the table as a creative, ambitious entrepreneur, and make sure to leverage them. A lot of times, partners, ourselves included, aren't going to...

have that additional insight, might have a lot of additional insights to offer, but just aren't going to have the opportunity or think to bring it up unless we're asked. But when we are, we all got into this business to help small businesses. And we're always excited to do what we can to help you grow your business. So ask the questions, make us, add more value. Think of how you're gonna get more value out of this conversation, not just directly, but like what point, people ask this all the time, what point of sales are good, what credit,

our processing is good and you know at the end of the day there's a lot of things I could be doing with my career I've chosen to stick to stick here because I want to make an impact I love making an impact on small businesses and communities and as you all probably know we've got acquired by SumUp recently and some of we just really align on our vision for the world which is a world where everyone can build a thriving business and we want to empower those small businesses all over the world and so when you're talking to us when you're talking to other great providers

make sure to bring that up. And for all the partners out there, never hesitate to reach out. Fivestars and Summa partner with lots of payment processors. We've built great payment and marketing gateways on top of this technology. We have great relationships with folks like Payrock, Fiserv, FIS, and we're always looking to build more relationships. And for all the fellow founders out there, I'm still doing angel investing and probably give much more advice than I write checks because that's kind of always been my thing, as Shane was saying at the beginning.

but love to hear what you're working on in the space or in adjacent spaces and keep making life better for small businesses around the world.

Shane Murphy (24:08.526)

Well, Matt, thank you so much for joining us today. Where can our listeners go to find more about you or Fivestars?

Matt Doka (24:17.072)

Sure, so fivestars .com is still up. That'll take you really to the core of our marketing and customer engagement platform. You can reach out to me directly on LinkedIn. Always happy to have a conversation or shoot me an email at matt .doka at sumup .com or gmail .com and take a discussion from there.

Shane Murphy (24:40.398)

Thanks again, Matt. Thanks for sharing all these experiences. This was awesome.

Matt Doka (24:44.656)

Sounds good. Thanks, Shane.


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