4 Pitfalls of Discounts for Restaurants and How to Avoid Them

Mar 11, 2024

The good, the bad, and the ugly of restaurant discounts

In today’s fast-paced e-commerce era, the enchanting melody of “free” has proven to be irresistible and powerful. Customers now expect brands to provide discounts and run promotions on their meals, and failing to do so may result in missed opportunities.

From vouchers and loyalty rewards to discount coupons, these promotional tactics have long been used to boost sales and increase restaurant profit margins.

However, not all discounts and discount strategies are created equal, and over-relying on discounts can lead to unfortunate results.

1. Discounts can drastically reduce your profit margins

At first glance, offering a discount to attract traffic and increase sales seems logical, but the truth is that not all restaurants possess the pricing power to sustain a 5-20% per order, especially when orders are placed through food aggregators like UberEats.

If profit margin is a concern for your restaurant, think of other creative ways to increase sales:

  • Offering seasonal items for a limited time
  • Menu items only available on certain days of the week
  • Gamification: offering rewards and points for purchases
  • Limiting special offers to their birthday or birthday month

2. No matter how generous your offer is, it is never enough

Often restaurants will see an increase of interest by introducing a discount, but after the novelty of it wears off, the sales numbers tend to plateau, especially when marketed repeatedly towards the same customer base.

Then the obvious next step becomes reducing the price even more since it worked the first time or reducing the price of other menu items. Unfortunately, this can lead to a point where a restaurant is no longer profitable and has to shut down.

A better strategy would be to offer a discount for first-time buyers or those signing up for your loyalty program, but set the expectation that it’s an intro offer. If you wow your customers with the quality of your food and service, they will come back for more, even without additional incentives.

Here are some examples of fist time offers:

  • “Redeem Your Welcome Offer”
  • “Receive a Free Entree with Your First Order”
  • “$3 off of Your First Order”

3. Discounts with a poor fit can reduce trust and respect of diners

If an offer is matched to the customer incorrectly, the customer sees something they are not really interested in at a reduced price, which can sometimes be perceived as desperate. People also might think that there are quality reasons behind specials similar to produce that has reduced pricing due to the expiration date approaching. This often happens when restaurants send one-size-fits-all campaigns to their entire database of contacts.

On the other hand, when an offer is custom matched to the customer based on their past purchase behavior and the behaviors of their cluster, the chances that they will buy from you again at a higher price point dramatically increase.

One QSR customer of Brightloom has seen the discount rate decrease by 20% compared to the previous quarter when they implemented a product personalization strategy using 15 top-performing menu items. As a result, they saw an impressive $1.2M in additional revenue!

Want to implement a product personalization strategy for your restaurant? We can help! Get started with Brightloom today.

4. If you always offer discounts, your customers will never buy at regular prices

Imagine a situation where your customers always buy from you using a special offer or a discount because it’s available to them. After some time they might start questioning if the regular prices represent the true quality of your menu items since you seem to be okay with the reduced pricing on a regular basis.

Once you go back to your regular pricing, one of two things might happen:

  1. Your customers stop buying because they were only willing to buy from you when a discount was present. Most likely, these people do not represent your Ideal Customer Profile (ICP) and will not help your restaurant grow and scale.
  2. Your customers continue buying from you even at regular prices. Those people are your ICPs and they will be the ones that contribute to your business success. Find as many people like that and make sure you implement a discount optimization strategy for them.

If you are finding that you are over-relying on discounts, you might need to review your discount optimization strategy. We at Brightloom help restaurant brands identify customer segments, understand their unique purchasing patterns, and provide recommendations on the best product/cluster fit. And we can do it at scale using our proprietary ML/AI technologies.

Want to see Brightloom in action? Request a demo today.

Let’s improve your restaurant together

Let us help you make the right recommendation to the right customer at the right time.