The damage that an ‘on sale’ strategy can do
There are some pretty significant differences between the restaurant and retail trades and so, while discounting might work wonders for retailers, it’s not necessarily the best solution for restaurateurs. In the restaurant business prices should not be peaking when the dish “hits the shelf” and then crash down to rock bottom in response to supply and demand economics.
Discounts can devalue
In the restaurant industry the use of discounting has a nasty habit of devaluing a brand. Customers tend to assume one of two things when restaurants start regularly discounting: either that the business is in trouble or that the regular price of the dish or menu is vastly overinflated. Both of these can shake the trust that is required for customer loyalty. Not only that but it could make it impossible for the business to return to “normal” pricing without losing customers in droves.
Changing the customer base
Too much discounting can shift the customer base established, putting off those customers who might be willing to pay more and making a business entirely reliant on those seeking regular discounts. Customers who are looking for discounts 24/7 seek ever-better reductions which can push a business into a spiral of price reduction that is incredibly damaging.
Impacting on margins
Discounting is often used to attract new customers or to encourage customers to return. However, even if both aims are achieved they are fairly short-term and one-off, and won’t help to grow the customer basis in the future. When the impact of discounting on customer loyalty is weighed up against the reduction in margin it often proves to be something of a futile exercise.
What are the alternatives?
Discounting is not the only way to attract new customers into a business and encourage repeat customers to return. Loyalty programmes, for example, can have a far higher success rate in terms of keeping customers coming back to your tables. Investing in social media can also be a powerful tool to reach out to a new audience or demographic. And if you’ve developed a unique concept and a cost friendly menu then you could achieve far better results with that than discounting could ever deliver.