Yet, we see both restaurateurs and manufacturers continue to attempt to do it. What happens?
Restaurateurs find that menu items sold at discounted prices produce lower profit margins and the volume increases are simply not enough to overcome the profit erosion. Additionally, servers who sell the discounted food items receive tips at the lowered prices levels, so they lose earnings.
Sound familiar, manufacturers? Tabletop companies that continually rely on discounts to secure orders cannot live on the lower margins with hopes of making it up on the re-orders. In today’s tabletop world, customers switch tabletop products with much more frequency, limiting the opportunity to sell smaller re-orders at higher margin pricing levels. And, similarly to restaurant operators, those that are doing the selling, simply work just as hard (or harder) as ever, but now receive less compensation or commission and bonus.
And finally, there’s the whole issue of brand equity erosion when deep discounting becomes the norm rather than the exception. Although New York’s legendary upscale restaurant Le Cirque utilizes Groupon’s Reserve program, director and owner Marco Maccioni is quoted as saying “You have to balance your exposure (in these types of programs) because we’re criticized for participating in these discount websites.” Dilution of brand equity is certain when discounting is used as a long-term method of improving sales.
Quality and value is built over a long period of time, built up through many touchpoints, experiences, and exposures to a multitude of brand attributes. Of course, the most easily manipulated of those attributes is price. Offering a deep discount is an easy way to push a customer to dine at your restaurant….or purchase your dinnerware…in the short term. However, there’s very little brand benefit, particularly for a product category with a buying cycle measured sometimes in years, or at a minimum months….rather than in days such as fast moving consumer goods are.
So, before you offer that next deep-discount….consider the overall impact on your brand equity, especially to loyal customers who like a restaurant or glassware product and would have paid the regular price. Long-term discounting is never a way to build equity into a brand.
This is a repeat of an editorial we published in our most recent TabletopJournal BULLETIN newsletter. Due to the variety of reactions we received, we decided to include it here where it will be archived under our Branding topics.
