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Can I use coupons to build my business? It works for restaurants like Papa John’s.

In most cases, coupons are a path to disaster. Coupons undervalue your product, and getting customers to come in with coupons doesn’t give them a good idea of what type of value you really offer. You end up with customers that think your restaurant is a good value, “with a coupon”. Then, they wait til the next coupon to come out before they come back to your restaurant.

As far as chains that use coupons, they know something the average independent operator doesn’t. They have a sales history showing them how much of their sales are given away in the form of coupons. They track their discounts, and they price their coupon marketing strategy into their menu. If a pizza costs them $3.00 to make, and they need to make $7 gross profit for every pizza they sell, they know they have to make the regular price of that pizza $12 or $13 so they can send you a coupon and make you think you’re getting a good deal paying only $10.

How many people really pay $18.00 for a large pizza at Papa John’s? None. People wait until they have coupons. Sure Papa John’s makes money, but they know they’re not earning repeat, full price, customers by sending out coupons. They know how much money couponing is costing them, and they adjust their prices accordingly. They then use coupons as a “trick” to build value into their product.

Can coupons be used responsibly and still allow for a profit? Sure, if that is part of your marketing and pricing strategy from the get-go. Outside of that, coupons should only be used to promote items that earn you MORE gross profit than you need to make money AFTER the discount is applied. Even then, I suggest never offering a flat percentage discount, and only using coupons to promote package values, or to give freebies that are “extras” that won’t detract from the gross profit you’ll make by selling the rest of the meal at full price.

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About friendthatcooks

Food service consultant and owner/operator of an in-home weekly meal prep service in Kansas City, Chicago, St. Louis, Omaha, Des Moines, Denver, Milwaukee and Wichita

Posted on March 2, 2008, in Questions and tagged , , , , , , , , . Bookmark the permalink. 9 Comments.

  1. If coupons are so “dangerous” why use them at all? Aren’t there better ways to make a living than to be at the mercy of the next coupon? Which anyone on the street can copy? And usually does!

  2. Sure there are. Couponing is a complicated tool that most operators, even the franchisees at chains, don’t understand. It’s not something I suggest in most cases to most owners, but there are exceptions. Those being situations where an owner is looking for avenues to promote value driven offers, or other “value” strategies meant to help drive up the average gross profit collected per person. When actual gross profit, and needed gross profit, per customer or per item, is factored into an offer, a coupon can be an effective method to promote an offer that delivers an increased gross profit per customer or item, instead of decreasing the gross profit and hurting the perceived value of the products as most coupon offers do. That said, coupons shouldn’t be the only, or even the primary, method of communicating with customers. Ideally, a restaurant has better lines of communication in the form of newsletters, emails and direct mail pieces to promote offers. That’s not always the case though, and sometimes “alternative” methods of communication, like coupons, may have to be utilized.

    That is a somewhat complicated tactic though, and not something most owners have the information or knowledge to do alone, so in most cases, I just recommend against coupons.

  3. Coupons don’t encourage brand loyalty. And they don’t necessarily make a retailer money.

    Unless it’s a “new customers only” cavaet…the people using coupons likely would have been your customers anyway, and you just discounted a product or service.

    Chris Mitchell
    http://258marketing.wordpress.com/

  4. I agree they don’t encourage brand loyalty. If anything, they most often entice people who aren’t and won’t be loyal to your business. Of course, they’re also most often misused, which is why they don’t necessarily make a retailer money. I’d say it’s quite the opposite, and most retailers, restaurants or otherwise, just use coupons as a way to attract new customers, thinking they’ll wow them with their product or service and earn a repeat customer. In reality, they just demonstrate the type of value a business DOES NOT offer at it’s regular prices. Not the message a business should be sending a customer.

  5. Coupons are a great way to get your name out and some instant business, not necessarily build a brand name or achieve customer loyalty. That said, for any new business first steps should be to get visitor to the door step. Hell, if Macy and JCPenny can run coupon ads and promotions every week, there is definately some value. If you can’t find your adv. nitche, follow on of these major retails and adapt their adv. strategies. Just my $0.02 .

  6. Macys and JC Penney have been losing market share for years. Not exactly who I’d want to model my marketing after. They also sell many products to “one-time” shoppers. With a restaurant, advertising to “one=time” shoppers is the kiss of death. The average dollar cost of getting one person into a retail business is $10-$15. If you’re not doing something to create brand loyalty and bring that person back, that is a net loss in most restaurants.

    If a restaurant is going to use a model for their marketing, they need to stick to modeling after other successful restaurants who also have to build a following of loyal regulars to be successful, not a retail chain that uses couponing to attract one-time customers to high ticket items.

  7. Your espoused this sage wisdom just as Groupon embarked on its whirlwind marketing domination in dozens of the planet’s largest metropolitan areas. While I feel that accepting less than 25 cents for every dollar in product or service given away is overly generous, one time special offers have long been accepted as an effective way for businesses to entice new customers and thank loyal ones. And I equate brand loyalty with blind loyalty… there is often something better out there then the company that spends the most money branding itself can possibly offer.

    • The experience of nearly every restaurateur I know who has used Groupon would disagree that it is effective. The brand that Groupon customers follow is “Groupon”. After eating at your restaurant at a discount, they are off to the next restaurant offering a deal on Groupon instead of coming back to eat at your restaurant.

  1. Pingback: Can I use coupons to build my business? It works for restaurants like Papa John’s. « Retail Accounting

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