Friday, August 09, 2013

Discounting to Win?

Groupon is moving away from Discounts and Towards value added.

In an issue of 'Restaurant Startup & Growth' magazine (a publication of ) there is a great article on discounting called "BLUE PLATE SPECIAL' by Patricia Luebke, which discusses the virtues and pitfalls of offering discounts. She offers actual case studies and examples from current restaurant owners. The insights are telling in that they not only apply to restaurants but also any business operation that sells to the public. While I was reading this article I thought about many of our customers outside the restaurant industry. Retail, Services, Airlines and more could all take a page from this article and apply it to their own operation. One of the chief tenants of her story is "once you discount, how do you go back?' How do you value something for more after you charged less. Two dinners for $15.95? After the recession ends how do I go back to my Dinner for $12.95 EACH?
Take for example a Membership Club that offers exclusive benefits for it's members at a premium cost. The economy has impacted their membership with several members electing to not renew - even though they believed that the price was well worth the the benefits they received. To maintain their revenue stream, they send out a mass mailing in the area offering 50% Discount for all new member applications. As Club owner, I am getting many new members, but at half the price and half the profit of the old membership cost. My utilities are the same. I still need to have staff on hand. What have I accomplished?
What about the existing member? I been loyal to the club for a year or more paying twice as much for the same facility usage. My renewal comes up and it is the same as always. What do I get? I am told that the discount rate is only for New members, so I let my membership lapse and go elsewhere. As the owner I have just lost a loyal client who may never come back. And the New member? They may stay for a couple months and leave.
The TAKE-AWAY? Add something more, or offer a discount on something you haven't had before. An example for the Club might be 'SPECIAL SWIM CLUB ONLY RATE' (doesn't include the workout facility.) You decide what's right for your business but beware - anything you give away today, you can't charge for tomorrow without expecting backlash.