Every restaurant considers discounting at one point. We all need to gain customers, and discounting can be very effective for this. But for the smaller restaurants and independents, it can also be a dangerous territory to enter.
Discounts devalue your brand, attract lower spenders and in the long-term, aren’t very cost-effective.
Wondering how?
Here are three ways discounting can be bad for your business:
1. Do you want your customers to remember the experience or the savings?
Think back to every occasion you’ve got a great deal on something, did you talk afterward about the experience or the savings?
The majority of us would speak about the money saved.
If that’s you, ask yourself, did you go back another time? Often, one discount does not create loyalty.
When you offer a discount, you attract a new type of customer called ‘discount spotters’, who simply hop disloyally to whoever offers them the best deal.
And that’s when you fall into the trap.
You’re now running discounting long-term, competing to offer the best deal and surviving on bringing in unloyal, low-spending customers.
Did you know that the top 10% of loyal customers spend 300% more than the bottom 90%?
For your business to thrive, you need loyal customers.
2. If you’re a small business, you can always be underpriced.
It’s easier for bigger businesses to produce something cheaper because of the economies of scale.
The more of something produced, the cheaper each unit becomes.
This means that by competing with bigger businesses on discounting, you end up falling down a rabbit hole and hurting your revenue as you simply cannot afford to go as cheap.
And in the process of competing, you devalue your brand, which brings me to my next point.
3. Discounting ruins how your brand is perceived
By discounting your food, you give the perception that the food is actually only worth the discounted price, rather than the full price.
If you have been suckered in by Groupon’s sales pitch of:
"Discount once to get customers to try you and then they will become loyal customers paying full price in the future"
Read this person’s realisation after their own experience with Groupon:
“I had the realization that good restaurants don't use Groupon because they don't have to—word of mouth is much more effective. Bad restaurants use Groupon because they have to—and any place that can discount so much for their customers makes me question how ridiculous their prices are to start.”
You want to be able to attract high spending customers, fill your spare capacity, encourage loyalty, and enhance your reputation.
Discounts are not how to achieve this.
Turn to reward schemes that encourage repeat custom
LUX Rewards are the “air miles of the restaurant world”.
Our premium rewards scheme targets corporate diners by partnering with banks, law firms, management consultancies, PR firms, and wealth managers to distribute LUX to their employees as a work perk.
Not only do corporates dine during the week which would help to fill your spare capacity, they’re also high spenders and aren't attracted to discounts because they expense their meals.
Our points system helps to:
Attract affluent and corporate customers
Incentivise repeat visits and higher spend
Maintain premium branding
Flex demand to your quieter periods
Unlike discounting, our premium reward scheme means customers pay full price, therefore LUX is a perfect solution for restaurants.
If you’re interested in finding out more, please email me at:
james@luxrewards.co.uk
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