Everyone Needs to Use the Red Napkin Strategy

In an interview with Gary Vaynerchuk, entrepreneur, and reality tv host of Bar Rescue, Jon Taffer gave the live stream audience some solid advice for customer acquisition and retention. An owner of a restaurant asked Taffer, “How do I ensure my customers return?”

Taffer gave the caller blunt advice, beginning with the cost of customer acquisition. Taffer estimated that using traditional media (e.g., radio, flyers, etc.), a new customer’s procurement cost is between $40 — $80 for a first visit. Working backwards, he then estimated that the food cost of a typical rib dinner would be about $5. Taffer advised the restauranteur to distribute 100 coupons for a free rib dinner to any patron that has not tried the restaurant before. When a patron arrives at the restaurant, you have successfully acquired that first-time guest for $5 in food costs and some expense for the distribution of the coupons, but certainly nothing like the $40 — $80 expense of traditional media.

Now, here’s where it gets interesting. If a first-time restaurant guest has a flawless dining experience, Taffer estimates the statistical likelihood of returning for a second visit is about 40%. If the customer returns for a second visit, the probability of a third visit bumps up to about 42%. If the guest’s third visit is flawless, the likelihood of a fourth visit zooms to more than 70%. Taffer says, “You have to market to three visits, not one. This is the part everyone misses!”

But how do you make sure those customer experiences are flawless? This is where the red napkin strategy is deployed. When first-time guests come to the restaurant, they are seated at a table with red napkins, not the usual white ones. The red napkin signals to all the restaurant staff that this is a first-time customer and for everyone to go the extra mile.

If the staff has done everything right, and the meal was great, the probability that the customer will return for a second visit is now 40%. A smart manager, someone who understands customer lifetime value, will incentivize a second visit. Taffer suggests that the manager approach the diner as they finish the meal and ask them how it was. If the guest is happy with the rib dinner, the manager now says, “Well then, you have got to try my chicken. Come in for the chicken!” And on the back of a business card, hand writes “$5 off chicken.” The customer receives the card and is prompted to visit a second time.

When the customer arrives for the second visit, the restaurant staff knows they are a second-time visitor because they have a hand-written card. After the meal, the manager will ask how the experience was, and if it was great, will say, “Man, next time you got to try my cheesecake,” and hand writes on a business card, “free slice of cheesecake.”

From a numbers perspective, the restaurant’s customer acquisition cost is $5 in food for the rib dinner, the discounted price covered the chicken dinner, and the slice of cheesecake is $1.35. In other words, for $6.35, the restaurant has acquired a customer with a 70% probability of visiting a fourth time for a full-priced meal. This is an example of how smart operators entice customers to repeat purchase and ease them into the full potential of their lifetime customer value.

Insight and Application

First impressions are powerful and can influence someone’s perspective for a lifetime. But so do second impressions and third. Taffer is saying that businesses have to drive the positive impact of that first impression deeper into the customer’s brain by exemplary second and third impressions. In this example, it’s only after that third positive impact that the customer’s affinity for your business will significantly rise.

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