Cost and Value of Discounts -- An Entrepreneur's Dilemma
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An entrepreneur in any business uses various strategies to sustain and grow their business. To spread the word he often practices his marketing that includes conventional marketing, social media and to a large extent word of mouth. It has never been uncommon to offer something extra, to the regular and new customers, as a value addition to build and reward loyal customers.
In recent times multiple 3rd party aggregators have come up with their exclusive loyalty programs and these programs have a tough task to balance three critical aspects - to make money for themselves, to provide attractive benefits to subscribers and to ensure the restaurant partners get lucrative business.
Add the 4th dimension of this scale of these programs and you will see the real problem faced by the FnB entrepreneurs who are the actual source of this value because they run the outlets that are being aggregated. Right there lies the important reason of why we are hearing so many Indian restaurants opting out of these programs run the very same platforms they helped grow and expect symbiotic relations with.
Here are a few key tips that a restaurant owner should consider before signing up for any program that offers discounts with a promise to bring in more revenue.
Before you plan to create new loyal customers
Are you a start-up that needs to reach customers quickly or an established entity that needs to reach a new goal of customers quarterly or struggling business? In any case, you need to know that you cannot lose money per transaction. You can easily know your food cost, labour cost, HR and marketing cost, rent cost and administration including sundry costs. This will tell you your average profit margins. You then leverage this further plan and understand different ways of gaining new loyal customers.
Regular discounts and up-selling in-house
Do you need more new customers or need more revenue per customer ? If you have a good number of regular customers coming in, regular discounts may not be beneficial. Up-selling when the customer visits your restaurant or offering custom discounts are a better idea. A new customer acquired only because of a discount will find you suddenly expensive without the discounts.
Track your APC
While the discounts may help get a few new customers, please watch how it impacts your “Average Per Customer”. Lowered APC for longer periods is definitely not a healthy sign. You can always check APCs and volumes to ensure that your venture is on the intended path. Remember, your costs are not changing with APC so it may simply mean lower margins.
Talk to your staff
In my opinion, the loyal staff is more important than any loyal customer. Your staff will always tell you what your numbers won’t. Are you getting the correct customers through these programs? Do you see any behavioural or entitlement issues with customers? The happiness of your staff goes a long way in your success too. You can empower your managers to add surprise perks to regular customers than the predefined offers through these programs. It helps boost staff confidence too which in turn benefits the business.
Your uniqueness can’t be discounted
While the costs can be on discount, the experience of being in your property for the customer cannot be on compromise. Your signature USPs can’t. It is not a good idea to be selective about when creating discounts and offers. but, is it advisable to not have a signature dish that you are known for on offer, you must be able to keep it exclusive.
Are you located inside a busy developed hub with high footfall or in an area that’s far for customers to commute to? If you want to win over your next-door restaurant using these discounts, this may only end up everyone doing the same. It may not be a bad idea for restaurants in the vicinity to jointly work and have a common strategy. If this isn't your jam then consider having offers that are not publicised outside the outlet but to customers directly. Social media is also a powerful tool to publicise offers. This will help to keep the offers selective, personal and create more impact and give the results you desire.
In addition to these, you can change the offers as per your timely needs.
For an industry perspective, entrepreneurs must sign up for these programs voluntarily and be able to provide offers of their liking and not something predefined. All entrepreneurial ventures are unique and so are their offers. Aggregators must voluntarily share the total number of its subscribers or allow their partners to know more about their platform. The programs must adhere to the promised numbers because not every customer can get a freebie, that's unfair for the entrepreneur. When everyone gets an offer, it simply means inflation and not a privilege.
It is quintessential to realise and enforce that customers and restaurants are part of the same ecosystem. For a restaurant to be successful a happy customer is a must and no customer is delighted with a restaurant that doesn't do well for itself.
Last rule of thumb to know if any program is working for you - plot a simple graph of say 6 months for sales vs net profits and you will always have the answer. Do you see increased sales as well as increased profitability in acceptable proportion? Numbers often tell the truth!