Choose Your Own Discount — The Evolution of Restaurants Seeking Your Attention
In an ever-changing technology environment, restaurants have evolved adopting innovative discounting practices as they continue to seek ways to attract new customers while maximizing profit. Restaurants, like everyone else these days, are competing for your attention to get you to spend money at their establishment. The process by how they go about getting your attention has gotten increasingly competitive as technology has evolved and therefore restaurants need to be creative. While word of mouth is still a very powerful method for restaurants to succeed although, it is often not enough to stand out. There is now a better alternative, choose your own price.
Coupons Cheapen Your Brand
Traditionally restaurants would seek out your attention by using coupon print ads for things such as phone book advertising or even participating in coupon mailers. This process has many faults including: wasting paper to say the least, extremely low conversion rates (0.5% — 2% according to JWM Business Services), and it has a profound impact on cheapening the restaurant brand. This isn’t as much of an issue for fast food, so they have been the primary beneficiaries of this technique, even though high-end restaurants stand to benefit the most, do to higher margins, but can’t due to a reduction in brand value. Unfortunately, traditional print ad campaigns, such as coupon mailers, still very much exist clogging up each household’s mailbox. While there are ways to try and limit junk mail by signing up for DMAchoice, you can never completely eliminate it. Ever check the trash can near the mailboxes of a large apartment building? If one could truly opt out of all this junk mail, it would save a lot of trees.
Can You Trust Yelp Ratings?
Word of mouth has a small reach but when you can track public opinion through the likes of Yelp, it expands a restaurants reach dramatically. The challenge for the restaurant becomes, how to show up near the top of the list of your search and ensure that the highlighted reviews say good things. Both of those things become a trap for the restaurant making Yelp a necessary evil. Pay Yelp for advertising and standout by showing at the top of the list, display better-highlighted reviews, and even a better overall rating, or get lost in the shuffle. Yelp has stated publicly that they do not manipulate ratings even though there are countless cases by which business owners have seen it happen or even been outright told by Yelp sales representatives that paying for ads will lead to a better rating. A 2014 ruling by the federal appeals court said even if businesses provide evidence that Yelp is manipulating ratings; Yelp can legally do so.
Groupon Daily Deals — Treated Like a Second Class Citizen
Given the challenges of standing out on Yelp, many restaurants tried out daily deals sites such as Groupon. Sold as a pay if it works model, meaning Groupon takes a large cut of the discounted proceeds sold, restaurants were quick to sign up with no upfront cost. Using daily deals was a highly effective way for restaurants to get your attention with deals such as 75% off and pack the house with deal seekers, but it didn’t take long before this method fell out of favor. The biggest problem with this method was the lack of repeat visits from a customer. It is one thing to pay to acquire a customer via discounting but when that customer never comes back again, unless they obtain a similar deal, that isn’t sustainable for the restaurant. Additionally, consumers are often treated as second-class citizens by being required to identify themselves up front as a Groupon customer. Wait staffs were quick to pick up on the traits of Groupon customers being poor tippers and hence the service they provide is lack luster. Worse yet, many restaurants stop honoring the deal and only give you the value that you paid.
The Rise of Gift Card Exchanges — Still Hurts Brand Value
More recently, Gift Card exchanges have had a dramatic impact on restaurant discounting. Sites such as Raise and Cardpool offered discounted gift cards sold by individuals looking to cash out on their unused cards. Large restaurant chains noticed this shift in consumer buying behavior and quickly realized that providing inventory for these sites is yet another way to attract new customers and give additional incentive for existing customers to come back more frequently. Many restaurants, especially during the holidays, offered up discounted gift cards if you purchase from them directly. The challenge is that it hurts brand value especially for higher end restaurants to leave a deal that is available to everyone. It then sets the expectations for repeat buyers that they need to have at least x% off before they will buy.
The Latest Trend — Variable Discounting
The latest innovation to recently break into the industry is variable discounting of gift cards via Skinnyprice. Rather than list one deal that is available to all, Skinnyprice gets its customers to self select the discount that they are willing to buy, offering different discounts to each customer on each purchase. It’s like playing a slot machine for gift card discounts but instead of putting money in for each slot pull, customers watch a brief video advertisement for credits. The beauty of this model is that it gives customers the chance at much better deals than they can find anywhere else and restaurants no longer give away a perceived price point that trains customers to purchase at. A restaurant can target a specific discount on average but can attract customers that require higher discounts along with those that don’t want to spend a lot of time watching ads. The more time a person puts in, the better their chances of getting a larger discount and the ad revenue helps offset the cost.
In addition to this dynamic model, Skinnyprice offers up local restaurant gift cards (for the Bay Area currently with plans to scale nationally). While Skinnyprice only recently rolled out this new variable pricing engine for gift cards three months ago, it has been quick to take off and has over 45 restaurant chains including not only major brands such as Cheesecake Factory, Morton’s, Flemings, and Applebees; but also big time local restaurants in the Bay Area such as The Stinking Rose and Dio Deka. With today’s choices people no longer have to settle for discounts given to everyone, they can choose their own.
This article is based on my opinion and what I have observed talking to many restaurant owners. What are your thoughts?
About the Author: Andrew Jones is a serial entrepreneur and the current CTO of Skinnyprice.