This question was asked during our Office Hours - Session #1 where we covered the topic of Data-Driven Discounting.
We have been using an Uber Eats BOGO for close to 18 months and have conditioned certain segments of our customer base to rely on this discount. What is the best strategy to wall this back without significantly impacting revenues?
from Sasha Bartashnik, Director of Data Products, and Nick Lanoil, Sr. Business Development Manager.
This is such a challenging question. I think the bottom line is you probably will expect to see some revenue impact. It’s unclear from the question whether this promotion is it available to all customers or just certain segments. Clarifying this distinction think could really make a big difference on your strategy.
The overall goal would be to minimize the revenue impact. Discounts and BOGO offers naturally boost conversions, so finding alternative approaches is essential.
Here are a few strategies to consider:
Identify Customer Segments
Can we identify which customer segments have become dependent on this promotion? If so, targeting these groups with specific strategies may help mitigate the overall revenue impact. Leveraging available data will be critical.
Incentivize Future Purchases
One option is to replace the BOGO promotion with an incentive for future purchases, such as a discount on their next order. This could help compensate for some of the lost margins, as we discussed earlier.
Shift to First-Party Ordering
Another idea is to encourage these customers to use your first-party ordering platform. Implementing targeted campaigns to incentivize them to order directly from you can recoup lost margins and allow us to communicate the benefits, perks, and more profitable promotions more effectively.
This is undoubtedly a challenging situation. I'm curious to hear your thoughts, Nick, or if anyone in the audience has additional input. It's not an easy problem to solve.
In the past people used to have their favorite dining spots where they would go to religiously. Now, what's the first thing that you do when you and your family are hungry? Most likely you're opening Yelp, DoorDash or Uber Eats and you're scrolling and you're looking for something exciting. It could be an enticing picture or, in this case, an attractive offer.
Perhaps, these customers wouldn’t be regulars of your restaurant if it wasn’t for that BOGO promotion.
If they're ordering through Uber Eats or a third-party service, chances are they're not part of your loyalty program, and you don’t have their information. Therefore, finding a way to transition them, as you mentioned, Sasha, to your first-party data is really important. How do you incentivize them and establish commitments, contracts, or promises that by sharing their information, we'll enhance their experience?
It becomes important to craft a compelling and exciting loyalty program that allows us to engage with customers proactively. Perhaps we could include a loyalty program card in orders delivered through Uber Eats or DoorDash, offering incentives that truly excite people and make them want to be a part of our community, rather than just making transactional dining decisions.
There's a comment from Samir, "Regarding the Uber Eats BOGO question, I think you'll find that your profit will improve once you get rid of the BOGO offer. We found that paying for placement made up for lost sales from Uber discounts. We also found that the customers who bought with coupons or discounts were coupon hunters and would only reorder when there's a discount."
I think that's such a great point. We need to go back to your objectives: Are you aiming to boost our top-line revenue, or is your focus on achieving profitability?
In many cases within Uber Eats and DoorDash settings, the competition comes from ghost kitchens that, as you put it, cater to "coupon hunters." These establishments typically operate with slim profit margins and often set up within another establishment's premises. While it's a viable business model, it may not be suitable for everyone. When faced with this competition, it might be a strategic move to step away from this game and redirect resources, as Samir pointed out, towards improving placement and visibility.
This shift in focus could help the brand thrive in the long term, emphasizing value over short-term discounts and differentiating itself from competitors operating on low-margin models.
When thinking about customer profitability, it's crucial to consider the cost of getting customers. This includes discounts and advertising expenses. Typically, you hope to recover these costs over time, maybe even breaking even or becoming profitable after about nine months. However, if your customers are mainly discount hunters, you can't make the assumption that they will eventually become loyal. You may need to adjust how you calculate their value, recognizing that there will always be a cost. This leads to two different approaches to discounting for customers.
And the distinction lies in offering a BOGO promotion to customers who are already loyal. This can enhance their loyalty or generate excitement about receiving something in return for sharing their information occasionally. These customers are more likely to keep coming back.