Michael Friedman doesn't believe in taking advantage of the customer. That conviction has served his company well. When the interactive marketing manager at Red Lobster came on board early last year, the restaurant chain's loyalty program, Overboard Club, consisted of 32,000 members—mostly employees. Friedman has since grown that database to more than 800,000 Red Lobster customers in an effort to retain the company's Most Valuable Customers.

The process breaks down to a simple mantra: "We don't bombard people with communication, and everything we give them has a benefit to the customer," Friedman says.

As in most success stories about customer alignment, Red Lobster didn't always provide customized communications. "The communications weren't rewarding to the consumer … it was a hard sell. It was 'here's Lobster Fest, so come in and get this,'" he says.

Coupled with irrelevant offers, e-mails often didn't even arrive in consumers' in-boxes. Red Lobster needed to first improve deliverability. San Diego–based Blue Hornet, the company's e-mail service provider since the inception of the Overboard Club, deployed Bradenton, Fla.–based Pivotal Veracity to address the deliverability issues. "A lot of people have been getting black eyes for cutting corners. We know that consumers are very sensitive and know that the landscape is changing," Friedman says. As a result, the company now sees open rates at 61 percent (prior to Pivotal Veracity, open rates totaled 52.8 percent). Customers also spend an average of eight to 10 minutes per session on the Web site exploring menu items and purchasing gift cards. Average time spent on the Web site prior to sending targeted communications was 6.5 minutes per session. This demonstrates to Red Lobster that a small percentage of its customers are driving a large percentage of online business, because 30 percent of the Web traffic generates 70 percent of the interactions and online orders.

However, the company wasn't appropriately rewarding the Most Valuable Customers with offers and communications that they wanted. In addition, customers complained of obtrusive pop-up ads from other companies when entering www.redlobster.com, so customers held the perception that Red Lobster was mismanaging their data. Freidman says, "We asked ourselves, 'Are we abusing the privilege of data that is given to us when people sign up for the Overboard Club?'"

Targeting top customers
The communications process now starts with gathering customer insight and managing the database. Friedman proudly states that the data does not come from lists or partner e-mails. Through surveys and data from the Web site, Red Lobster gleans information that ranges from customers' favorite talk show hosts, to whether or not they split the check. He says: "There are a lot of e-mail restaurant programs out there that have good practice and theory. What they take for granted is the insight opportunity—the opportunity to gauge feedback, trends, psychographic experiences, what makes [customers] tick and what makes them different."

From the new insight, Friedman's team created a program that pushes 13 e-mail communications per year to Overboard members based on dining choices, buying patterns and geography. The program reinforces events geared toward their interests, such as a wine lovers' cruise, or promotions and messaging about their favorite seafood. "We feel that we've earned their trust," he says. "We've been good at providing value proposition without handing out a bunch of buy-one, get-ones."

The results of the targeted loyalty program speak for themselves. Customer database growth increases by 50 percent to 60 percent per year. Redemption rates among Overboard members are four to five times higher than other consumers', and are redeemed at higher rates. Customer insight not only fuels relevant e-mails, it also enhances the company's offerings. For example, the company shares data with Garden Real Estate—the enterprise's real estate retail team—to determine the need for new restaurants. Members are often asked how far they drive to Red Lobster. Friedman says if he sees a surge of people in one particular region commenting about an hour-long drive to a restaurant, that trend often indicates a need for a store in their area.

Friedman believes there's an opportunity to take the reward structure to another level by encouraging specific interactions on the Web site and tailoring the awards to individuals. He calls it being more "user selective," and believes that it will help Red Lobster to further gauge customers' interactions with the company and then help the company build trust. Friedman says, "When your best customers become your brand advocates, that goes a long way."