Don't Give Away Your Waffles
Why is it out of business? It offered free waffles.
The sad tale of Blue Ocean illustrates the perils of promotions based around free stuff. They can really backfire and take your business down the drain.
I suspect the original intent was for the waffles to be free for just a short initial run, while locals were discovering the restaurant. It was designed to break loyalties to other local breakfast spots. And it succeeded in spades. Soon, every business meeting and mommy meetup in town was being held at Blue Ocean. Other local diners lowered prices on some items to try to compete.
It was the greatest marketing tool ever--at the 4th of July parade, the owners handed out laminated waffle-shaped placards advertising the free waffles. I've still got mine on the fridge. Adorable.
And, since waffles were pretty much one of two main dishes along with scrambled eggs, the restaurant was probably losing money on nearly every transaction. We all knew it couldn't go on forever. This isn't like Adobe, where they give you the cheap Acrobat, because it hooks you into buying Flash or Creative Suite. They had no move-up product...they were just giving their core product away.
After many months, Blue Ocean set a date--the free waffles were ending. That lasted about two weeks. After being reduced to an empty, echoing shell, the restaurant owners caved: free waffles were back.
Another attempt was made--they made the waffles free but only with other purchases of a certain amount. This rule put many customers into a huff. They expected the waffles to be free in any case. Feelings were hurt.
Ultimately, the restaurant couldn't make money with its free offer, and it couldn't keep customers without it. Talk around town is that a rent hike was the last straw. It's hard to sustain a rise in costs when you're giving away your core product.
In this age of freemiums and books preaching the power of free stuff, Blue Ocean provides a cautionary tale: construct your free offer carefully. In the downturn, many retailers feel pressure to lower prices or offer giveaways. But remember, free offers should bring customers in, build loyalty, and then prep them to move up to something you get paid for. Otherwise soon, your retail space may be free for another entrepreneur to rent.