Connections for Success

 

06.04.13

Attracting Customers Using Value Promotions and Discounts
James Pellino

Customers are always looking to get a deal.  Whether it’s finding that breath-taking house that is undervalued or getting that amazing all-inclusive deal to Cabo, the perception of value has become a standard tool for marketing products and services.  There’s even a type of investment strategy centered around finding stocks that are beaten down and under-valued (value investing).  So it should come to no surprise to restaurateurs that the customers that walk through your door everyday are not only looking for a good meal, but also value.

The restaurant industry certainly isn’t unaware of this notion.  Quick service restaurants have often offered coupons and most recently “value” menus to consumers looking for value.  Full-service chain restaurants also got into this trend by offering deals through online sites like Groupon and in-store promotions like “2 for $20.”  These types of deals for both quick-service and full-service restaurants, however, are not pulling in the customers they once did.  A study done by the NPD Group shows that restaurant visits driven by deals and discounts declined by 3% in 2012 compared to 2011, showing that  2012 is the first year that restaurant visits driven by deals and discounts actually declined since 2008.

There are many variables that can play a role in causing this downward trend.  One idea is that the economy and macro-economic factors are simply doing better since 2012 than they had been in 2008-2011.  Consumers may have the flexibility to spend a little more on dining out.  Another possible reason is that the deals described above have been out for multiple years and their perceived value has deteriorated.  Consumers now view them as a regular price point on a restaurant’s menu.  There could be – and probably are — countless more reasons why the deal and discount traffic has died down in restaurants.  The important point to note is that promotions currently in place are no longer as effective as they once were.

All of these variables combined with the decline in visits means restaurants must now rethink and tweak their deals and discounts.  You must make sure that the deal or discount your restaurant offers has perceived value to the consumer.  Some restaurants with higher priced menu items like Sullivan’s Steakhouse, Ruth’s Chris Steak House and Roy’s are offering prix-fixe meals.  The strategy is to offer customers an opportunity to sample an array of the restaurant’s best dishes at an affordable price.  In theory it sounds like a good promotion, but does it work?  In an earnings call in February 2013, the chief executive stated that the prix fixe selections comprised approximately 20% of sales for 2012.  Olive Garden began a promotion that allows customers to order an entrée at the restaurant and will give the customer another entrée when they leave for a dinner another night during the week.  Studies have also shown that online coupons on your website and deals through social media (i.e., Twitter) continue to drive foot traffic.  Again, it is important to make sure that whatever you implement, you make sure it has perceived value to your customers.

It’s also important to consult your CPA and be proactive in letting him/her know what your promotions will be before you roll them out.  Depending on how the promotion is set up, there may be some accounting ramifications that you should be aware of and will need to factor into your overall strategy.

 

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