The situation on the catering and entertainment markets is such that the dumping wars and the competition led to the state when the establishments of the same target group segment virtually have become equal in their pricing policies.
What do I mean by the prices in the target group segment? That is the literal example: one cannot compare the price for juice in a family café and at the night club. Approximately, that’s the way it is. The target group segmentation implies the distinct distinguishing of the target group itself as well as its pricing potential.
I have had such cases in my practice when we tried to surprise the Guests of a premium restaurant with good prices, for example, for sushi menu. But not all people understood that and the low price (let’s say, of the fast food level) was associated with bad quality. As a result, the sales were falling, but not rising. So, you need to be careful even with dumping.
But now we are talking about the different thing. So, the prices are equal, the quality is more or less the same as well, the competitor’s assortment terribly reminds your own… It’s time to switch on your marketing imagination to make your Guest come back to you again and again. In other words – to develop his (your Guest’s) loyalty to your establishment.
One of the most efficient (after the price and quality, of course) methods of bringing up Guest’s loyalty is a discount system.
In our marketing practice the most widespread variants of the discount system are bonuses and direct discounts (they are sometimes referred to as storage and direct discount programmes).
So which of them works better? What kind of venue will discounts or bonuses be more efficient for? What discount (bonus) should be proposed to a Guest? How to develop discount programmes? Do I lose a lot on discounts? What other nuances of the discount programme implementation will I come across?
We are going to try to clarify these questions and to consider several facts that, I bet, you have never thought about.
This is the first and the most widespread loyalty system in business. From the ancient times merchants from all over the world bargained in order to get a more advantageous price, and the sign “Loyal customers get DISCOUNTS” can be considered the top of the marketing conception from the period of the USSR.
Direct discounts are convenient for Guests as well as for establishments. “Get your profit right here and right now” – that’s the way it works.
Any business owner can instantly estimate the total gross turnover of the “discount losses” just pressing the button “Print out discounts report” (or something like that).
But discounts don’t always mean losses. You should treat discounts in a more philosophic way.
For instance, your “losses” (as you consider them to be) from discounts made up about 500$ a month. For this money you could arrange a bill board in the city centre or “make some noise” on the radio during one week.
All those things are aimed at attracting new audience. At the same time those people who received a discount from you have ALREADY visited you, have ALREADY brought some profit and have ALREADY (in case everything is all right with your quality and prices) become your advertising agents. We still keep in mind the power of “the word of mouth”…
Nowadays any producer, supplier, businessman is ready to take off from 10 to 40%. That’s the general observation, applying not only to the restaurant sphere.
I have no problem getting a 10% discount at any occasion and at any negotiations. I can remember one case, when while building one of the restaurants I managed to make the contractor dealing with ventilation give the discount of 40% from that on the market. His distributor’s markup was 50%… Their company earned 10%, and could have been left with nothing …
For that reason world producers add distributor’s discount to the price at once. The price of clothes, food includes SALE DISCOUNT in case of season sales or expiry.
Be honest: if you hand out 100 10-percent discount cards and obtain 50 new Guests, are you going to refuse? And keep counting on flyers and bill boards? That’s rhetorical…
And it is proved that the efficiency of handed discount cards return makes up more that 50%! That is, half of your Guests with cards come to you again!
For example, the normal efficiency of advertising flyers like “Exchange flyer for a present” return is considered within 5-10%…
Don’t be afraid of handing out discount cards. Make it easier to obtain them, give them to your Guests as a present on holidays or just for a good check, make your waiters ask leading questions like “Have you got our discount card?”… All in all, do everything to make your Guest your loyal advertising agent.
And what discount is acceptable? The size of the discount depends on your food cost, and consequently the markup. In average the food cost of provincial establishments is about 30%, so the markup is 150-200%.
In order not to seem an impregnable miser, throw any ideas of 5% discount out of your mind…. it will be taken as a mockery. But what is strange and paradoxical: 5% discount is a shame and 5% bonus is great! But we are going to come back to it later…
So, start from 10% and more. Develop your discount system in such a way to make your Guest see the possibility of the discount size increase.
Let your Guests count, save the checks and play this amusing game with you. Let them play, if only they eat …
In our establishments we practice the discounts from 10 to 25%. In order to get a bigger discount, you must collect a certain sum on the card. To obtain our card you need to have checks for a symbolic price of 20$…
If you have different markups for your bar and cookery, in this case you should make discounts for either of them… besides, some items can go without discounts at all.
For example, in one hookah venue we decided that hookahs will be ordered anyway, because this is our feature, so we made 20% discounts on cookery. It worked. Before introducing discounts the cookery sales were 40% lower.
Bonus loyalty system is rather new for our market. Its main point is simple: a certain percent from the payment sum is put into a Guest’s virtual money box.
The drawback of this system is that your Guest does see any direct profit from it …
That’s all about its drawbacks, but there are some many advantages!
The first paradoxical advantage of this system that has already been mentioned below is that bonus can be lower than a direct discount. 5-7% – that is quite a noticeable bonus in the restaurant business.
Many patrol station chains, for instance, use the discount programme of 1-2%… and the clients collect bonuses and enjoy themselves!
What is even more interesting: not all bonuses can be cashed. If discounts are made in 100% of cases when you use them, the percentage of bonuses cashing is only 30-40%.
In other words, if your Guests collected bonuses worth $1000, they will cash only $400… as a result, bonus “costs” of your establishment will be not 5 but only 2%, and you will save $600!
As a rule, a big part of bonuses that were not cashed are small sums. It’s easier for the Guest to go on collecting them rather than save $1, let’s say, on pizza right now.
In order to attract your Guest to the game of “bonuses”, print the information on their amount on the check, make waiters inform about their availability. For example: “Greetings! You have 250 bonuses in your money box!”
Something from my personal experience: I have been using the service of one petrol station for 6 years. Their prices are higher compared to their competitors, the fuel is ordinary, but it is my bonus card that attracts me to that place. And the bonus is only 1%, and I have never cashed it … just a game…
In our establishments we use cards with 5 and 7% bonuses. We also provide our loyal Guests with the opportunity to increase their size.
WHAT IS MORE SUITABLE FOR YOUR ESTABLISHMENT: BONUSES OR DISCOUNTS?
Paying with bonuses is connected with certain difficulties. Very often Guests ask before paying: “Will you, please, have a look how many points I have got!” or ask for the possibility to pay with bonuses after the waiter has brought the check, and the letter has to waste his time.
From my own observations I can say: bonus system is bad for the venues with contact bars (night clubs, party bars and so on) and for the venues with deposit and virtual payment (for example, aqua parks, beach clubs, where money is put on a virtual account with a bracelet).
In premium segment establishments discounts work better than bonuses. The Guests of such venues are not interested in all those games. They count their money and enjoy being the holder of a cool discount.
AND MAYBE THERE IS NO NEED IN DISCOUNT PROGRAMMES AT ALL!
There is such an opinion: if your service needs a discount, this is not a service… or other interpretations like that.
I come across some restaurateurs who are above all those discounts and bonuses.
It happens and it has sense. But very often it turns out that they grant their VIP guests with considerable discounts. It turns out that there are more equal among equals…
It has been noted that the establishments that don’t use discount programmes, also don’t carry out any special marketing campaigns and content themselves with struggle for price and quality. But we keep in mind that the quality is almost equal, and there is no problem copying the competitor’s prices … it’s necessary to leave the comfort zone and do something.
Bonus: practical features and advice that will help develop the loyalty to your establishment
THE DESIGN OF YOUR CARD MUST BE UNIQUE (my samples)
You need to realize that your establishment is not the only one that handed a card to your Guest. Pharmacies, supermarkets, petrol stations took care of their customer as well. Quite often all those cards can’t even be fitted into a wallet and look like a pack of cards.
In such a mess your card’s originality must be brought to the forefront. It must be noticeable in the pack of others. And the originality of the card will be an occasion for your Guest to boast in the company of friends which will be a good PR for you.
In our work we used special metal cards with engraved names, transparent cards (because all others are coloured) and cards with animation shimmering …
If you don’t have any ideas of an original card, you should develop its design using your brand colours. You are recognizable in your Guest’s mind, and he will find your brand colour faster than if he has to read the names.
METAL VIP-CARD WITH THE ENGRAVED NAME
SHIMMERING LADY’S CARD with the animation effect
MAKE GENEROUS ONE TIME DISCOUNTS/BONUSES
To develop your Guest’s loyalty you need to fork out on one time big promotions and presents. Follow the Guest’s personal interests, professional holidays and so on.
For instance, discounts for birthday celebrations or presents for people celebrating their birthday (a bottle of champagne or a cake from the establishment) work pretty well.
If your venue is located in or near a business centre, you must make discounts and surprises at various professional holidays: «All accountants get 20% discount on a holiday banquet at The Accountants’ Day” or “Only today: all lawyers get PRESENTS, but not bribes!”.
CUT YOUR BONUS RELATED LOSSES WITH THE HELP OF A “SPECIAL SHOP” (bonuses exchanged for goods)
One more way how to decrease your expenses while cashing bonuses is a “Special shop” or a “Souvenir shop”.
You need to develop brand attributes with your logo, make a price list (with some extra charge, of course) and make a proposal to your Guests “to cash” the bonuses buying something from the shop.
Thus, you kill 4 birds with one stone:
- written off bonuses remain “in your pocket”
- gross expenses related to discounts are reduced
- the Guest who has bought your brand attribute becomes your advertising agent
- and the main thing is: the Guest got his profit and is satisfied!