Beware The Gimmick Discount

You’ve seen them. Those advertisements offering “Kids eat free Tuesday” or “$5.00 Margaritas all day every Thursday!” are a sure sign of future problems. Restaurants do this from time to time, and they definitely work – but they also have catastrophe written all over them. In this post I will explain how this tactic hurts the business, and ultimately the guest.

When a restaurant offers a discount on anything, they are attempting to attract more guests. This “sales driver” tactic is pretty popular, and absolutely will bring guests in. These guests could be brand new to the concept, or they could even be regulars. But one thing is guaranteed – why would anyone pay more for something when they can get it cheaper on a different day? Although most guests wont change their pattern of behavior immediately, this discount, especially if it is a certain day of the week, will draw guests to that specific day or time. If I go into the restaurant on Monday for some Margaritas, but I can get them half off the next day, chances are I will change my behavior to purchase the less expensive item. This means that the days surrounding those discounted days are slower, and that discounted day see more business.

This can cause issues with service timing, and most importantly, train guests to come in on days when the item is cheaper. So you sell the same number of margaritas, but you lose that profitability because of the discount. Once the discount is removed some people will not return, unwilling to fork over full price for that item. The guests that are new might only come there for that discounted price – and if you are buying something for $5.00 each, and it goes up to $10.00 when the drive ends, are you going to find the value in doubling your expenditure? These discounts offer incentives for people to come in and try something new, something unique, something they might not have gotten without the discount. When the discount expires, those that take discounts into consideration will not return to purchase anything. This ultimately leads to the business needing to offer more discounts, more gimmicks to drive traffic. It is a drug for these operations, and is impossible to get off of them.

I have worked in different concepts that utilized this strategy. These successful concepts definitely lost guests with every drive. In both situations, prior to offering this discount, the Home Office increased the pricing of all items on the menu. Seems counterproductive – to increase price, then offer a discount. This is actually used in retail often. Anytime your discounts are worth more than what you actually paid those prices were inflated to begin with. Businesses exist to generate wealth, and when you lower your opportunity to do so that only means one thing – going out of business.

Of course my opinions are just opinions, but successful companies like Bennigans failed because of discounting. Other companies have had similar struggles, and before they fail, they usually employ this strategy. Discounting your product to increase guest count sounds great in theory, but if that product sells better at a lower price, maybe the item is overpriced to begin with. Or maybe it is just not that delicious, I mean, they have to incentivize you to buy it. If you have any experiences like this and would like to discuss, leave me a comment!