Why Discounting Is Bad For Business: Part 2
The scene is a typical “slow period” between rushes in almost any business. The question is whether or not to offer discounts to just get anyone in to cover the costs of business.
Of course there are many factors at play here, not the least of which is that this scenario leaves the reader with the impression that you only have 2 options: empty seats or discounts. This is totally misleading and doesn’t really show an understanding of how to effectively create a marketing strategy. But to go into all the variables that go into this type of analysis would be exhausting for even the most interested cost information junkie.
Another point is that some businesses who operate during all 3 major dayparts (breakfast, lunch and dinner) have at least 3 distinct slow periods as well. This puts dramatic pressure to maintain margins during the peak times to make up for them, and can strain efficiencies needed to not only service the guest but the operation also.
Suffice it to say that there are many, many options based on the understanding and execution by the operator of what a strategic marketing plan will do for those slow times and the business overall.
One option, which I call the “fresh fish” idea (because it basically answers the same question of ‘why does fresh fish cost the same one day later?’) is to simply have different prices during different day parts. This is not for the sake of masking a discounting strategy, but simply as an ongoing strategic pricing option that takes into consideration the idea that prices do not have to be static during each daypart. Nor anything else for that matter. Different size portions, different cost structures, different menus and the like can be creative answers to the slow periods, and can be utilized no matter what size operation you manage.
Another option is to target guests who would normally take advantage of off-peak dining periods. Who ever said that you cannot focus on specific guest demographics for specific dayparts? Business managers, teachers, shoppers, moviegoers, housewives, househusbands, college students, etc…It is done all the time, but independents do not seem to understand this marketing reality. Think ‘Happy Hour’ but best!
How about scheduling larger gatherings (like parties or business meetings) or cooking and wine classes that not only offer some revenue but great marketing as well?
The corollary to the marketing side is of course cost containment. Looking at the service needs of the guest and the operation and begin to creatively attack the cost structure of labor, food, menu etc… to help support margin pressures.
The biggest obstacle is that of immediate gratification. Operators want it now and in their rush to ‘just do something’ they limit the effectiveness that a well-planned and executed marketing strategy can make for the entire business and not just slower periods! If you limit your thinking to something vs. nothing, most of the time you still get nothing because the cost of desperate and deep discounting to simple pay the bill always creates more problems than it solves.