Discounts:

Gretchen Rubin writes an always thought provoking Happiness Project blog: Her July 20, 2007 blog posed the question about how to get kids to eat healthy. Quoting a story in The Week magazine got me to think about discounts and giveaways.

“In the descriptions of the various programs that appeared in The Week magazine's “Nutrition Classes Don’t Work” (7/20/07, not available online).

“But in practice, kids given free fruit and veggies, a federal study found, were even more likely to turn to junk a year later.” --People generally believe that they get what they pay for, and therefore don’t value free stuff very much. (Is this the ultimate Giffen good?) Giving healthy food away may have sent the signal that no one would ever pay to eat it. This is ironic because in fact, you have to pay more to eat healthy than to eat junk.

People do not value something you give them as much as something you charge for. Restaurateurs in an effort to generate awareness will initiate all manner of discount programs. Most fall into two categories. % off or value added (we will discuss frequent dining or loyalty programs in a future post)

Percentage off offers a specific discount off existing menu prices.

Grand Opening discounts, employee discounts, 10%, 15%, 25% discounts, $dollar value off, after lunch discounts, day old product discounts etc …

Some concepts, for instance Pizza, are very coupon driven. Customers will receive coupons in the mail for $2.00 off and immediately call for a pizza that evening. Hence, the reason for the preponderance of pizza mailers, relative to other concepts. If your concept is discount driven then you must provide discounts in order to compete, or provide an exceptional product. Restaurateurs are as a group very enamored with giving their product away. They generally lack the faith or the patience that their product will resonate with their customers. The strongest argument against discounts is that value added programs enhances your product while discounts tends to diminish the perception of quality.

Value added offers a specific additional product at no or reduced cost.

Ubiquitous value meals are actually a good example of this type of program. The customer purchases some item at full price and receives a discounted or a free second item ( i.e. buy a entrée and dessert is half price) (i.e. buy a sandwich, get a free cup of coffee). Value added promotion enables the perception that the product price is fair and a good value, and as a gesture of good will we provide additional products at a reduced price.