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RESTAURANT STRATEGY
Why Discounts Attract the Worst Customers
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#542 - Why Discounts Attract the Worst Customers ***** This week's episode is brought to you by: MARQII VISIT: https://marqii.com/ This week's episode is brought to you by: RESTAURANT TECHNOLOGIESVISIT: https://www.rti-inc.com/ ***** PRICE is different than VALUE. The worst customers want the lowest price possible. The best customers want the most for their money. Make sure you're attracting the right one. ***** If you want to snag a copy of Chip's book, The Restaurant Marketing Mindset... CLICK HERE: https://www.therestaurantmarketingmindset.com/ If you're ready to learn more about the P3 Mastermind... CLICK HERE: https://www.restaurantstrategypodcast.com/p3-mastermind-program If you want a free 30-day trial of our Restaurant Foundations Membership Site... CLICK HERE: https://www.restaurantstrategypodcast.com/Foundations-b If you want to leave a 5-star rating/review on Apple Podcasts... CLICK HERE: https://podcasts.apple.com/us/podcast/restaurant-strategy/id145737...
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Okay, so let me say something that will immediately make some of you uncomfortable. If your marketing strategy relies on discounts, you are simply training your restaurant to attract the wrong customers. Not cheap customers, not bad people. The wrong customers for long term profitability. And today I want to explain why. Discounts might feel good in the moment. They might feel like it's the only thing that works. But how? Discounts quietly destroy loyalty, they destroy margins, and they will erode your brand over time. All of that on today's episode of Restaurant Strategy. There's an old saying that goes something like this. You'll only find three kinds of people in the world. Those who see, those who will never see, and those who can see when shown. This is Restaurant Strategy, a podcast with answers for anyone who's looking. Foreign. Hey, everyone. Thanks for tuning in. My name is Chip Close. I am your host here of the restaurant strategy podcast. Put out two episodes every single week. You know me by now. I run a coaching program. It's called the P3 mastermind. I write books. My first book, the restaurant marketing mindset, came out in 2023. My next one. Shh. Don't tell anyone. My next one's gonna come out in just about six months, so keep an ear out for that. I also give talks all over the country and I do on site coaching. Here's the deal. If this is interesting to you, if you want to bring me out to talk to your. Your community, your collection of restaurants, your staff, I'd love to have a conversation about that. The best way you do that is just email me personally. Chip, chip close.com c h I p k l o s e dot com. Let's start a conversation. We'll talk about how it works. Talk about the best way to get the most out of my time there and the most for your team. Again, chip@chipclose.com c h I p k l o s e dot com. Let's have a conversation. All right, so one of the coaches who works with me is a guy named rev Ciancio. I think he is hands down the smartest restaurant marketer I know. He works at hundreds of restaurants all over the country and he's an operator himself. He's a restaurant owner. He works with the P3 members. He teaches the weekly marketing call that we do in the program. And then again, he acts as like a fractional cmo for hundreds of restaurants all over the country. Did you know every time he works with a new restaurant, he insists they use marquee? Right? We recommend marquee. All the time, but he insists on it. It helps with listings management, SEO and reputation management. With Marquee, you get to manage and respond to all of your reviews right? From Google, Yelp, OpenTable, TripAdvisor, Facebook, Grubhub, on and on and on in one central place. Because of that, they help you improve your star ratings with consistent review responses. They will even respond for you if you don't have time. Marquee also makes sure that all your hours, menus and information matches across the entire Internet, which places you higher in near me searches, which ultimately helps you get more butts in seats. If you're curious to learn more, visit marquee.com that's M A R qi.com as always, you'll find that link in the show Notes now we're talking about discounting Today. Discounts may feel like they solve short term pain, but they do that by creating long term problems. So let's start right off the bat with why discounts are so tempting, right? Sales feel soft. The dining room looks empty, especially on like Tuesday nights. Wednesday nights cash flow is tight. So you discount and it works, right? Traffic bumps, tickets fire, the room fills. And that dopamine hit convinces owners, right, that the tactic is sound. It's working. But discounts don't fix demand. They sort of borrow it. They borrow it from tomorrow from full price visits, from loyal behavior. See, discounts teach guests how to value you. And here's the lesson that discounts actually that actually lodge into your customers brains. It says hey, you know your food isn't really worth full price rating. Waiting is rewarded, right? Just wait for the discount, right? There's no urgency to come. Just hang out. You'll get a deal eventually. And see guests are not stupid. They are pattern recognition machines. If discounts feel frequent guests adjust their behavior. They wait, they hesitate, they compare. And and when you do that, you actually don't create loyalty. You are conditioning a different kind of behavior. And see what happens is that then you start attracting a certain kind of guest, right? Price sensitive guests are not the same as value driven guests. This distinction matters. Value driven guests care about quality consistently. Experience. They want to know that the meal is actually worth it. Price sensitive guests only care about the lowest cost, the best deal and the timing of the offer. See, discounts disproportionately attract that second group. And that group, guess what? They tip worse. They complain more, they return less consistently and they leave faster when the prices normalize and they'll never come back. That is not my opinion. That's not judgment. That is hard data, not just from the restaurants that I've worked with, but industry wide. Now every restaurant operator understands the chaos of a commercial kitchen, especially during a meal rush. Restaurant Technology's Total Oil Management Solution is an end to end automated oil management system that delivers filters, monitors and actually recycles your cooking oil, taking one of the dirtiest jobs out of the kitchen, which lets your employees focus on more important revenue driving tasks. And guess what? RTI has no upfront cost. Control the kitchen chaos with restaurant technologies and make your kitchen safer while maximizing efficiency. Visit rti inc.com or you can email customer care@rti inc.com or call 888-796-4997 to get started. All of those links are in the show notes now. Again, we're talking about discounts. Discounts are dangerous. Discounts mask operational weaknesses. And see, this is where discounts really get dangerous. Because I think they hide inconsistent execution. I think they hide weak retention, unclear positioning, forgettable experiences, and honestly, bad marketing. Seth Godin, Bestselling author, marketing guru One of my, one of my absolute heroes, always says pricing is the last refuge of a marketer who doesn't know what else to do. And so here's something really, really important. When you discount, you're basically, you're basing basically operating under the assumption that the only reason someone's not coming to visit you is is because it's too expensive. And that's not true. It's simply because you're not top of mind, they didn't think of you, you're inconvenient, they're not in the mood for your kind of food, they had a bad experience last time, or it's simply not worth it. All of those things can be fixed. You can target people who are conveniently located near you. You can stay top of mind through constant messaging. You can make sure you you have consistency in your operation. You can make sure that the meal, even at full price, has value, is worth it, goes above and beyond, right? So instead of fixing the root problem though, owners are basically subsidizing it, right? Discounts become a crutch and then a habit and then on the part of the customers on your guests becomes an expectation. Ask anyone who ever worked at JC Penney. Ask anyone who's ever shopped at JC Penney. They are deal seekers. Everything's on sale all the time with super sales a couple times a year. It's dangerous. See, what happens then is that promotions, all this discounting ultimately ends up shifting the power away from the restaurants. See, when all these discounts become normal, guests get to control the timing. See, they decide when it's quote unquote worth it. They decide when to show up. And guess what? They even decide when it's time to disappear. And that's not a relationship. That is pure transaction. And transactions don't compound, right? How many first dates have people been on? First date is a first date is first. It's awkward small talk, just getting to know you conversation. But when you go on a second, third, fifth, tenth date, when you celebrate anniversaries, that relationship compounds. You get to know each other. That's loyalty. See, most discount strategies ultimately end up punishing your best customers. Sound familiar? Right, last time we were talking about the unclear expectations, how being nice actually ends up pushing away your best people. Same thing here. Your discounts push your best customers away. And there's something ironic in that, right? Your most loyal guests are happy to pay full price. They already love you. They come, you consistently see discounts give them a lower price for behavior they were already doing. Meanwhile, all the least loyal guests get rewarded for being inconsistent. They get rewarded for waiting, hanging on the sidelines. Don't you see how that's backwards? We know all of this, right? So let's. But let's just say this out loud. Discounts shrink margins. And guess what? They raise expectations. See, lower prices don't lower expectations. Right? It's counterintuitive. But guests still want speed, they still want quality, they still want hospitality. But now you're delivering it, all of that. Now you're required to do it, but with lower margins. So pressure increases, stress rises. And yes, mistakes happen. When mistakes compound, they erode the experience that the guest is having. Which is weird because when they're paying less, they have higher expectations. So the mistakes sting double. And then owners wonder why discount at nights feel harder. That's why they're harder. When discounts do make sense though, and why most owners misuse them. Discounts can work when they are rare, when they are controlled, when they are purpose built, and when they reward a specific behavior. See, most discounts are panic driven. Panic driven strategies always backfire. Let me give you the best example. I know on a discount, I am willing to give a discount to get a first timer in the front door, right? So use the hellofresh model. Hellofresh has been around 15, 20 years. And the biggest resistance HelloFresh gets, right? If you go back and you look at all their case studies, HelloFresh, right? For anybody who doesn't know it is the home cooking, right? You get your food delivered and the recipe there and walks you through how to make the recipe. The whole point of hellofresh is like, hey, are you getting tired of cooking the same thing? Do you want some variety to your meals? Do you want easy meals to prep and you know, to prepare? Great, we got you covered. But a consumer who's never done hellofresh is like the biggest resistance is, well, am I gonna like it? Will my family like it? And is it really as easy to prepare as they say? So hellofresh has used the same, they've employed the same tactic, the same discounting tactic for the last 15 plus years. They say, you know what, why don't we give you your first three weeks for free, Just try it out. They want you to get in the rhythm. Now they could give you just the first week free, but they know that they're trying to groom a behavior. And there's consistent data that shows habits take several weeks to establish. So they say, why don't we give you, why don't we give you some meals for free, not just one week. How about we give you three weeks so you can see all of the variety, you can make sure you like what we give you and you can be assured that it's relatively easy to prepare these meals. So they take the biggest objections off the table. You don't have to stress about it. They know they're willing to spend a couple hundred dollars because the average customer stays. I think it was like 32 weeks or 38 weeks. So it's a $200 investment on the part of the company for like a $2,000 return. Talk about ROI. That's a 10 to 1 ROI. So for me, I am willing to use a discount to get somebody in for the very first time. Whether that's through meta ads, whether that's through direct mailers, whether that's whatever it is. I'm willing to give $5 off, $10 off, $20 off, you know, your first meal's free, whatever. To get them to change their behavior and to create a new routine to come on down, try us out, see if you like it. And then the rest of my flywheel takes over. Because once they walk in, I have a system for getting them, getting their contact information. I have a system for getting them into loyalty. I have a system for emailing them and putting messaging in front of them that will inspire repeat visit. I know that I can put something in their hands that will inspire a quick return visit within the next 30 days, my flywheel takes over. But what I need to do is get more people in the front door because not all of them, right? So of 100 people who come to try me, you know, roughly, you know, 70% will never come back. So all I need to do is improve those metrics a little bit. If I can get half of them to come back, great. If I can get, let's say 25% of them to come back in the next 30 days and trust that the other 25% will come sometime before the end of the year, well then great, I'm winning. I'm beating all my KPIs. So I'm willing to do a discount on the beginning because they don't know me. So I'm trying to take all the objections out, right? So they're. Because their objections on the guest part are going to be, well, I don't know if I'm going to like it, you know, like, I don't know, I haven't heard anything about that place. Yeah, I totally get it. So come try it out. Get your, you know, get it's, you know, $10 off. Come try it out. Come $20 off. Come try it out. See, most discounts again are panic driven and panic driven strategies backfire. But I am being very strategic about how I use discounts when I do that. So it's one example of when I like to use it because I know it works. And so here's the real shift I want you to make, right? Discounts don't build loyalty, they simply replace it. If people only show up for the deals, they were never really yours. So that's the example, right? I don't discount ongoing. Maybe I'd be willing to discount to get somebody in the front door for the first time as long as I have a process in place to make them a repeat customer. Here's your action. Ask yourself, if we stop discounting tomorrow, what would guests miss? If the answer is the really great price, then that's a real problem to hear. It is. The most profitable restaurants in the world don't compete on price, they compete on trust. And trust is never discounted. Trust is about consistency. Trust is about connection, engagement, hospitality. And guess what? Most of those things are absolutely free. They're things that you should be doing anyway. Discounting might feel like the only thing left to do. But if that's true, then you've got a bigger problem. If that's what you're dealing with, then I don't think you have Anything that really draws people in. Nothing that people can't help but take pictures of. There's nothing that people are like dying to tell people about, right? They come in, it's really good. They go home rather than they come in, it's really good. And they go, oh my God, you'd never believe I I went to this place and like they have this dish that blah, blah, blah, blah, blah. Make some of those. That breeds loyalty, that makes people want to talk about you. Novelty sells, not discounting. Listen, guys, appreciate you being here. Thank you very much. I know there are a lot of great podcasts that you can listen to, so I appreciate you making this part of your week again. I'll remind you, if you want me to come out and speak can make that happen. If you want me to come out and work on site with your team for two days, that is what I'm doing through the end of the year and I'm already starting to line up some dates in 2027. The best way to kick that off is to just email me directly. Chip@chip close.com c h I p k l o s e.com I appreciate you guys very much and I will see you on the next one.