I have long been an opponent of operators using coupons and discounts to try and build their businesses for multiple reasons.
- They accept lower margins as an accepted way of growing the business.
- They force you to compete solely on price.
- They focus on short term outcomes.
- They create a situation (I compare it to a drug addiction) that requires you to constantly seek out bigger best deals in order to simply maintain existing traffic levels, let alone build them.
- They take away your ability to compete on any perceived value differentiation.
- You become a commodity in your market area and susceptible to any differentiated brands that exist or enter your market area.
- You are forced to match competitors pricing without regard to your cost or profit structures.
The list goes on and on. So in believing as I do, I am quite frequently asked what the alternative is. I used to be surprised at this question until it was asked of me in so many situations and circumstances and by so many operators that I now expect it will be asked every time I talk about business marketing to anyone and everyone. Therefore, I am going to try and qualify my position here by outlining the only two business marketing philosophies that exist. And while some may comment that these also apply to most any business or industry, while this may be true, I am a business (food service) consultant and only work with food service operators. I don’t care about retail strategies (they don’t work in food service) or manufacturing or consumer goods marketing simply because their product and ours is totally different. They sell products, we sell a social experience.
There are only two types of business marketing philosophies:
1. Transaction Based Marketing (TBM)
Transaction Based Marketing is marketing done to maximize sales to guests solely through a focus on increasing the number and amount of customer transactions. This can be done through a segmented focus or not. No past, present or future relationship with the guest is demanded or leveraged.
This is basically ‘push’ marketing designed to promote impulse buying through an emphasis on only price. You have an offer or deal (coupons or discounts) you want to ‘push’ out to as many people as possible with an expectation that they’ll use it thereby driving as much traffic into your business as possible as immediately as possible. This is a short-term tactic and requires more and best offers or deals to both maintain existing traffic levels and to increase them over the long-term.
This type of strategy is also supported by utilizing frequency schemes disguised as loyalty programs wherein the customer accumulates points towards future discounts. TBM is expensive because it focuses on both aspects of pricing strategy, cost and profit, at the same time. Costs for executing this type of program run between 10 – 20+% of sales or higher due to the actual production costs, medium delivery costs, discount costs and a very important lost opportunity cost for sales and profits that would have occurred if you had not discounted your products but sold them for full price and typically have lower ROI’s. An example of this would be an operator who email blasts a ‘Buy-1-Get-1-Free’ (BOGO) offer to everyone in his email database.
The campaign is focused on a specific menu item or groups of items and is not segmented to go to particular groups within the database that may have indicated an affinity for that particular item or group of items.
2. Relationship Based Marketing (RBM)
Relationship Based Marketing is marketing done to maximize the guest relationship with the business and its brand with a desire to increase the lifetime value (LTV) of each guest instead of a per transaction approach.
This type of approach is highly segmented as it attempts to match guests who prefer to interact and develop a deeper and more complex relationship with the brand on a social basis other than price. These are the guests who desire more perceived real value from the guest experience. They are more social in nature and require that the brands with which they interact offer some degree of social relevance to their lives in order to maintain their patronage and loyalty.
The idea being that if you can insert your brand into a guest’s life and make it a habit for them to visit you due to a unique social interacti0on or situation that can cement them to your brand, it will increase not only frequency but derive true loyalty that leads to increased positive word-of-mouth, buzz and ultimately guest referrals. Examples of these types of social interactions can be cooking classes, wine tastings, social gatherings (Tweetups) , networking or business group meetings, entertainment, family outings, civic events, cause marketing efforts, etc…
Relationship Based Marketing is relatively inexpensive compared to the heavy transaction costs and lower margins associated with TBM and has a much higher ROI. Instead, the focus is on creating a perceived value in the mind of the guest which correlates to similar social preferences or values that the guest holds. No items are discounted and segmentation of the brand’s messages is more natural and more aligned with guest social preferences and values. While a great example of this is Social Media Marketing efforts, individual efforts can include promoting local and organic ingredients, healthy menu items, green efforts, a more highly defined food culture or culinary experiences, high profile chef’s, premium or unique wines or beverages, greater levels of hospitality, more meaningful personal interactions between guests and staff or operators, community causes or connections, business associations or partnerships, etc…
Guests really don’t want lower prices, they want better value.
People still believe, “you get what you pay for”. So as the world grows more and more social and each of us requires more value and more interaction with the people and brands we interact with, it becomes increasingly necessary for businesses to offer real value in the guest experiences by connecting with guests on a more social level at all touch points possible.
Simply using the old couponing and discounting tactics of years gone by does not, in any way, help accomplish the businesses goals of growth and success. Looking at each guest as a transaction instead of engaging them in a real relationship simply doesn’t make economic sense any longer and even group and chain exec’s are admitting it publicly. It cheapens the real and perceived value of the product, the service and the business overall and makes it more likely that the guest will not be loyal to anyone other than the business with the lowest price. Is that the business you truly want?