The Impact of Discounts on Restaurant Business

In the fiercely competitive world of the restaurant business, discounts have long been seen as a valuable tool to attract customers and boost conversion rates. However, there is more to the story than meets the eye. In this article, we will explore the nuanced relationship between discounts, business growth, and customer perceptions in the restaurant industry.

Discounts are typically employed to create a buzz around a restaurant and entice new customers. They can be an effective way to get people through the door, especially for newer establishments looking to establish their presence. However, it’s crucial to remember that discounts alone are rarely a sustainable strategy for long-term success.

Successful brands understand that while discounts and cashback offers can be a valuable component of their marketing strategy, they should not be the primary driving force behind their business. Relying solely on discounts can lead to financial challenges, as seen in the case of companies like Cred. I’m a fanboy of this app and I’m using Cred as it offers cashback for paying my credit card bills and money transfers via UPI.

If Cred stops their cashback, then there are more chances people might move on to the other apps that give cashback. If you consider me, I used Google Pay as it gives rewards and then I started using Cred as it gives better cashback per transaction. Coming back to the business, even when Cred scales their business through cashback offers, the expenses often outpace income, making it uncertain when they will achieve breakeven.

One common strategy employed by restaurants, especially on food delivery apps like Swiggy and Zomato, is inflating their menu prices and then offering discounts. This practice, often driven by the desire to give the appearance of value, can have unintended consequences. Customers today are savvy and can easily compare menu prices. When they discover the inflated menu costs, combined with delivery fees, they may feel cheated. This can lead to a decline in brand value and customer trust.

The next huge impact because of relying on discounts is your cash flow. Giving unreasonable discounts will end up wiping your cash flow and creating difficulties in maintaining the business.

So, how can restaurants effectively use discounts to win over customers and boost their business?

Instead of employing discounts solely for marketing, consider a more strategic approach. Calculate your food wastage and use this information to create events on platforms like Gleeca. By passing on the value of the food wastage as a discount to customers purchasing your tokens via Gleeca Events, you create a win-win situation. Here your customers are booking their meal well in advance. So you know how much you need to procure to fulfil the orders. Hence Customers get a real and meaningful discount, while you minimize waste, reduce costs, and build a loyal customer base.

Secondly, offer combo offers. If Item A costs your customer INR 100 and Item B costs your customer INR 60, club them both and offer it for INR 150. Here you are not only giving a discount but cross-selling helps you boost your average order value. Here you are not losing money but bringing more revenue from the same customer.

If you noticed Domino’s Cheesy Rewards, they offer a free Pizza if their customer makes orders worth INR 400 or more in 5 orders. Here you are making a revenue of INR 2000 or more for a customer and then offering a free pizza worth INR 199. Here instead of giving discounts upfront, Domino’s motivates their user to buy more to get a free pizza. This is one of the highly successful strategies which is applicable to any restaurant kind.

If you noticed the popular toothpaste brand “Colgate”, they offer the same toothpaste in multiple sizes. They earn a massive profit margin from their lower variant. Similarly, if you can offer your dishes in different sizes like Small, Medium, Large etc, you can offer a more flexible menu to your customers. You shall set more profit margins on the minimal variant and less profit on the higher variant. Here you are pushing your user to try the higher variant and helping your business to get a good sale value per customer instead of offering unrealistic discounts.

Last but not least, while discounts have their place in the restaurant industry, it’s crucial to use them thoughtfully. Discounts can be a powerful tool to attract and retain customers when integrated with a broader business strategy. By focusing on value and transparency, restaurant owners can not only enhance customer conversions but also build a strong and sustainable brand in an increasingly competitive marketplace.

About the Author:

K.P. Alagu Rajeshwaran, the CEO of Hyrrokkin Branding Services Private Limited, is a passionate entrepreneur with 10+ years of successful experience in Digital Marketing and Sales. He is the proud Co-Founder of SaaS Products like Hykko and Gleeca. He leads the team of Hyrrokkians. Alagu Rajeshwaran also offers strategic consultations to help companies grow their business. He can be reached at rajesh@hyrrokkin.net

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