Discount Addiction

It seems restaurants have become addicted to discounting to get their fix of covers through the door, without much thought having been given to the value of those covers or the damage continuous discounting is doing to their brand image and business’s long-term health.

Sure, discounting can be used as a quick fix to get through a trough, attract or re-attract customers, however, operators encounter problems when there is no clear strategy in place or when discounting becomes a habit.

Let’s take a look at the cost of discount addiction and its symptoms…

 

Perceptions

Price points are a form of communication with consumers; cost will often set the stage for a brand and the quality of its products. Higher pricing structures tend to sit with more upmarket brands and are usually perceived to be of greater quality, take Beefeater and Hawksmoor, for example.

So when a restaurant offers a discount it sends a message to the consumer, usually that the operator is trying to attract more customers, although it also indicates that there are deals to be had and therefore entices potential consumers to shop around.

 

Expectations

Consumer’s expectations don’t, and shouldn’t, change because there’s a discount in place. In fact I’m sure many restaurateurs will agree that guests dining on a deal are usually harder to please than those paying full price.

Once a restaurant starts continuous discounting, consumers come to expect to pay the discounted rate moving forwards, they’ll rarely return to pay full price and will most likely wait until there’s another promotion.

 

Relationship Problems

When appealing to consumers by price point rather than brand message, restaurants will start to attract a different type of guest than the intended target audience. This could damage the venue’s profile, database and overall customer experience, not to mention the difficulties of encouraging repeat business among consumers who have no interest nor loyalty to the brand.

It’s not just customers who may be difficult to retain; as discounts become the norm payroll tends to be reduced, sales incentives are less, as are customer tips, so restaurants may find their front and back of house teams start looking elsewhere too.

 

Financial Difficulties

With rent, rates, national living wage and costs linked to inflation all rising, a restaurant’s margins are already incredibly tight without throwing a profit reduction due to discounting into the mix. Particularly in January, we see operators competing with heavy promotions, which inevitably leads to a price war to see who can better 50% off, who will discount drinks as well as food and so on and so forth.

Price wars occur when a competitor feels threatened by a rival price point. To counter the threat they will most likely match or undercut it, but then what happens? Does the rival reduce their price again? Yet again the competitor is likely to counter the rivals price. It’s a downward spiral that erodes profits and eventually puts people out of business.

 

Cutting Corners

Cutting corners is a common symptom of discounting and a major area of concern; operators try to claw back their profit margin by reducing costs elsewhere in the business. This strategy may have worked in the past but nowadays customers are better educated when it comes to product quality and are used to high levels of service, so trying to cut back in these areas only leaves operators exposed.

The restaurant’s prices may be lower but will customers still required the same level of services and the cost of preparing and delivering the product remains the same so cutting staff hours is out of the question. Reducing the quality of ingredients to save money is an absolute no go as it doesn’t provide a true reflection of usual brand standards, therefore ruining the operator’s reputation and ensuring customers leave unimpressed with no reason to return. Equally diluting portion size in the hope of upselling is an awful idea and people are wise to it, restaurants should be adding value to customers plates not forcing them to pay extra for necessities.

Customers will spend more money when they’re enjoying themselves, so by adding value to their experience they’re more likely to stay for another round, book another table and recommend the restaurant to their friends.

 

Health

It takes a long time and a lot of hard work to design, build and communicate a brand image; discounting is one of the quickest ways to reposition and deconstruct a brand, infecting most internal operations, causing damage to the overall health of the business.

It may not just be the business’s health that suffers; running restaurants can be pretty stressful at the best of times, with today’s rising costs and heightened competition, inflicting the strain of having to work harder for reduced profits isn’t going to help.

It’s difficult to stop discounting once a business has developed a dependence, restaurateurs often become paranoid believing it’s the only way to attract customers and keep the business alive. Luckily that paranoia isn’t true and with a clear strategy in place restaurants can be weaned off discounts.

 

Rehab

It takes time to rehabilitate a brand, however, by re-evaluating pricing strategies, creating demand through engaging content and investing in brand marketing to distribute campaigns, it’s possible to restructure a restaurant business and attract full price consumers once again.

The key areas for restaurateurs to remain focused on in 2018 are: bringing additional value to consumers, creating memorable experiences and resisting the cravings of getting that quick discount fix.

 

Thanks for reading my blog!

Connect with me on social media & join my mailing list here…

Facebook     Twitter     Instagram     Linkedin        

If you would like Tim to consult for your business or speak at an event please drop us an email here.