I have seen a lot of posts on social media recently of a Cheltenham restaurant* offering 40% off their food throughout August. Creating a discount is a good idea, right? New customers will come and enjoy the deal and sales will no doubt increase. Wrong, it's a bad idea in so many ways and I will try and explain why.
Firstly, people are purely choosing you based on price and not the experience they are receiving. Surely this is bad for your brand? Discounts do not build loyalty. These people will potentially come once to your restaurant, maybe twice throughout the discounted period. Do you really believe they will return when they are not saving 40%? They most definitely won't. Loyal customers are the most valuable customers to a restaurant, with around 10 percent of the most most loyal spending three times more than the bottom 90 percent.
Picture the scene. It's July 31st. I book a table at a restaurant like I often do. I go to the restaurant, pay my bill and go on my merry way only to find if I had eaten exactly the same thing the day after, I would have save myself 40%. That would leave a very bad taste in my mouth (no pun intended).
Surely people now look at the normal prices and think they are too high? You have to start questioning their prices if they can afford to give 40% off their food. Perhaps people will all just wait until August when they know they can save £4 in every £10 which is a lot to giveaway in any business. You would hope people would return to spend their savings when normal service resumes, but bargain hunters don't generally care about brand loyalty.
Finally, do the staff earn less in tips throughout August? The traditional 10% is a lot lower with a 40% discount than it is when at full price.
Sadly we live in a Groupon society where people expect discounts. There is a fine line between effective discounting and brand-damaging devaluing. If you are confident of your product and brand, surely there is no need to discount in the first place?
* I quite like the restaurant in question