Restaurant Promotion Gone Afoul: The Most Expensive Free I’ve Ever Seen…

Just a quick question… What kind of a tip does one leave after paying one dollar for dinner? Question #2 - who looks more ridiculous, restaurant.com or the restaurants who support this type of insanity? It’s cocktails in the car all over again. You were too kind…

BB

Wait! Where’s the real Jaime Oikle and what have you done with him? = )

I agree with Bob that you were too kind, but welcome to the party. Now if we can only get you to see the light on Yelp, OpenTable and coupons & discounts in general.

Completely agree! In fact, each time a patron uses any of the Restaurant.com GC’s the restaurant LOSES money, no matter what the consumer paid for it. The “hope” is that they’ll come back without a coupon the next time or “discover” a place they haven’t been before.

$35 min spent
-$25 GC

$10 spent in restaurant
-$11.90 food cost on $35 @34%

-$ 1.90 net loss (everytime)

I agree with this. The image is tarnished. Selling a USD25 GC for USD1 makes the restaurant appear desperate for patronage. And it also conveys that there is no current interest on the restaurant. The worst part about it, the sales go the website. Poor desperate marketing is what it is.

Just shows that some restaurants want to commit financial harikiri; but every place that discounts to buy business is taking away trade from elsewhere.

Hi Jamie,

We use Restaurant.com as one of our promotional tools. I agree with you that it’s not a great way to promote business.

But, I strongly disagree with you that it’s not a good tactic. First Restaurant.com should be one of 100 tactics you should be using to bring guests in the door.

Second you have to have a solid relationship building program installed. Like comment cards, a birthday list, an email newsletter, VIP Club, and any other strategy to capture name and email address.

You also need back end offers. Our back end offers consist of special events at our restaurant. Such as wine tasting, cooking demos with our chef, “Oldies Night” with a local oldies band, book signings with local authors and other special events. They all have a set price and no discounts or coupons are taken on those evenings. We get lots of Restaurant.com people to come to these events.

Also, our Restaurant.com per head average is $28 and our offer is $25 for $10 with a minimum of $50 spent.

I breakdown and track every promotion we have going in our restaurant. Each promotion has to labeled as such and tracked as ROI (return on investment). So I look at Restaurant.com as one tactic and track every dollar made per head on the entire tactic and I do this on a monthly basis.

Now, don’t get me wrong, we see bargain hunters and they spend nothing, but we usually never see them again.

Also, you have to have a trained and skilled staff that knows how to upsell when those certificates are presented.

But, again this should be one of 100 ways you’re bringing in guests. If you’re confident in what you offer you should do fine with any promotions you choose to use.

Agree completely with you, Jaime. I think a brand is devalued (perhaps irrevocably) with offerings such as the $1 promotion at Restaurant.com. It would be much more beneficial and profitable if the restaurants listed on that site were to fully utilize their own websites for marketing and promotion purposes. There are so many opportunities these days for restaurant operators to maximize their online reach without the use of sites like restaurant.com. I do feel like the tide is turning and that promotions such as this will only speed the transition to bringing solid internet marketing strategies into the food industry mainstream.

When it sounds too good to be true, it usually is. Restaurants who use discounting programs like this are attracting customers who buy into discounting programs like this. These types of customers have no loyalty. And yes, as is pointed out here, they are losing money every time they accept one of these “gift certificates.” Restaurant owners who use coupons and discounts must walk a very fine line between a value-added promotion that makes your customer feel good and makes them money vs. a promotion that cheapens your product and costs you money.

I’d love to see the ROI rationalization that Ralph Napolitano talks about. You may as well just give $25 coupons out the front door.

Whatever happened to word of mouth marketing because your food and service is just that good!

I would rather pick up my best customer’s check, word of mouth will do much more than a coupon !!!!

I’m a firm believer in having control of every step in a marketing plan. This promotion (and others like the Entertainment coupon book) leaves the door open to this type of abuse because the restaurant that signs up for the “service” has no say, no vote, no control (read, “Bad…very bad”. When you use coupons (this is what they are), you attract coupon users, who will not return until your next coupon.

Don’t these companies realize that were are such a small profit margin business to start that they should stop digging deeper into our shallow pockets???!!! Obviously NOT! Yelp wants me to pay a mere $150 a month to have a higlighted box with my place in it… YIKES!!! Open Table does a good job of giving you back details on ROI, but most of my marketing budget goes to them. Rock Me Hard Place

@Bob, rationalization? First, you’re not giving $25 of services away. For arguments sake let’s say you’re giving half that away $12.50. No one comes alone. Let’s break it down for a dinner for 2. $12.50 divided by 2 gives you $6.25 a person given away in services. Now, like I said we average $28 per head after the $25 discount. So the dinner for 2 total check average is $81.

Now, let’s dig a little deeper. What if 4 or 6 come in with the discount. For 4 you’re giving away $3.12 for 6 you’re giving away $2.08.

Table of 4 = $137 total check - $25 = $112.00 to you.

Table of 6 = &197 total check - $25 = $168.00 to you.

If you don’t want that…please send them to me.

@David Scott Peters I love you’re site and I have you on my radar to attend your workshop for sure.But, I completely disagree with you’re no loyalty statement. Here’s a question. How many new guests that come in with no offer or discount become loyal return guests? Let’s say for arguments sake that 25% become loyal guests. If you can’t turn 25% of discounted customers into loyal guests you need to re-examine what experience you’re giving you’re guests.

Not everyone who uses discounts is looking for a bargain. With today’s economy people are spending their entertainment money very wisely. They’re still going to go out, but not as often.

So, they might look for a discount for a new restaurant they have heard about or someone has told them they should go to. They’re afraid to drop a nice amount of money in fear they might have a bad experience and regret the choice they made.

Someone who used to go to dinner 6 times a month now goes 3 or 4 times. Now, they will spend their money on the reliable experience before trying something new.

In turn, when you give that new guest a great experience…you win. They will return to you more often and when the economy turns for the better they will be coming to you more often.

Like I stated earlier the bargain hunters will never return…because their embarrassed to return…serve them fast and send them on their way. But, the person who’s taking a chance on you with the discount will come back, bring their friends and not show up with discounts.

This should only be 1 of the 100 things you’re doing to attract new guests.

If you don’t want them…send them to me.

No disrespect to the gurus here…I read your stuff and am thankful theirs people like you who help restaurant owners and who have helped me…I thank you and will continue to read and buy your products. But, it’s a lot easier to coach from the bench than is to play the game.

For 11,000 restaurants nationwide, we’re helping introduce their cuisines to new guests and filling tables when they otherwise go empty. All operators know that fixed expenses and food costs are constant while Restaurants’ supply of customers is not. We refer millions of customers and help fill tables at restaurants every single month. We are a viable option, proven effective for thousands of restaurants in these challenging times. We encourage anyone interested to take a closer look and reach out to us directly at partnerjoin@restaurant.com.
Shane Baldino
VP - Restaurant Marketing at Restaurant.com

You can listen to why Jaime is right, Shane is wrong and why Ralph fails basic restaurant math at 2pm CST today on our show Hospitality101 on BlogTalkRadio.

http://www.blogtalkradio.com/Hospitality101/2009/09/11/The-Looting-of-the-American-Restaurant

Great post Jamie. Absolutely positively agree with you. This just may be one of the WORST discounting schemes I have seen is borderline unethical. Can’t wait to talk about it on the Hospitality101Radio.com this afternoon at 2pm CST.

Re: Jeffrey — we have hit on Yelp — you can see that at http://restaurantramblings.com/2008/07/yelping-out-loud/

And yes, I did step out on this one — passionate topic — and I’m glad to see the conversations.

Re: Shane — I’d say focus on the “tools” those can be helpful. But the discount front end is just not the right approach for restaurants.

Re: Ralph — thank you for real world operator take — I especially like your comment on 1 of 100 techniques — restaurants do have to have a variety of marketing programs and approaches — certainly can’t rely on just one or think that there is a home run button to push.

I had been with Restaurant.com. What a rip off. The people had to spend $35. and got $25 off. Many would order “Water”, and their order would be just under the required $35, and they would then have to order a dessert to meet the requirements.
According to Restaurant.com, they could only come in once a month, and they were to fill one of the empty tables. Most of the RDC guests would leave the tip on what they paid, yes, just a small tolken of what the normal tip would have been. The Certificate was to be presented upon arrival, not at the end of the meal, but this did not happen either. It was like they were ashamed to present the certificate. The certificated needs to be called in, and at times the phone lines were busy, the customer wanted to leave, and the RDC process was taking long and we were looking bad to them because of it.
In a review, I had a customer complain that she had to pay $34.00 after the certificate. They had wine with their meals, and their total tab was $62.00 which included Sales Tax. There were 4 people. The prices are in the menu including the wine list. Use mental Math.
At the recommendation of RDC, we increased the spend to $40, and added a note that gratuity would be added based on the original bill. The customers did not like this feature, but the staff did.
RDC did NOT build customer base, and I had to honor their certificates for ONE ENTIRE YEAR without any “web presence” from RDC after I left the program. I had to give RDC 90 day notice to leave, that was followed by the one year.
RDC is a win-win for RDC. They changed the certificates a year of so into the program, and never even notified me.
When I wanted a copy of the contract - they never gave me a copy (my mistake), they sent an email copy of multiple pages without my signature. I advised that I had not signed that contract and wanted the one I signed so they then sent a half page contract that could not be read, but it had my blurry signature. I only wish I would have read the contract Now vs Then. Then I was young and gullible. The idea of Internet exposure won me over. How foolish.
By the way, I do not see the RDC customers. I have not seen any of them since deleting the RDC program, not even the ones we were on a first name basis with. They only coupon. They only wanted the free ride. RDC does NOT Build Customer Base, they only fill your chairs with mouths taking free food.
Don’t get me wrong, maybe 1/4 were good customers, but they were from out of town and would have come in anyway, just for their ONE visit to the community & no return.
Since I eliminated RDC, the stress level at the restaurant has greatly decreased. The staff knows that they will get what they EARN.
By the way, I was with RDC for 4 years. How stupid!

Coupons are great in this economy. BUT….

BUT, profitable sales volume far exceeds maximum sales volume. You still have bills to pay from your gross profit.

So the coupons must drive traffic, repeat visits and NOT give away the farm. Protect your margins.

Use coupons wisely to drive traffic to slow days and reward loyal customers. Use coupons to gain Top Of Mind awareness. BUT MAKE A PROFIT.

As for gaining a customer list, the RDC 90% promotion appears in my humble opinion to be entirely ineffective in terms of ROI Return On Investment just looking at cost to capture foot traffic.

We engineer great outcomes for restaurants through Birthday eClubs and Monthly MVP eMail Coupons everyday. However, all the marketing (good or bad) is not worth a plug nickel if the experience is not amazing.

The customer has choices and we’d better be the better choice…..because every customer is deserving of and should receive the highest level of service possible.

Hal McClamma
CEO
SurveyWow.com

We used RDC, for a year or so when we first opened. I thought that to get some people talking about the new… I really felt that we could make money even after the discounts, with up selling. I quit the program b/c of the $1 sale. Brought in customers that we are fine with out. I wish I could send them to Ralph. You could see the difference in the customers the $1 program brings in. SCARY

[...] of the coupon, because the guests tip on the after comp price while we pay tax on the before.  This is what coupons without reason brings to the [...]

@Bob Bickell
“What kind of a tip does one leave after paying one dollar for dinner?”

Regardless of how much of a discount you get, your server is still doing the same amount of work as they would if you were paying full price. Therefore, calculate the tip percentage based on the undiscounted price of the meal.

I agree that this is a bad idea. It brings in the kind of people you DON’T want in your restaurant. They aren’t coming back, they just want a cheap meal. Most of them couldn’t afford to eat out like that anyway. Our restaurant was originally adding gratuity on to the total check before discount. Until one guest complaint about slow service, and now every time we get a restaurant.com GC, it’s like working for free. Terrible.

You never know if a customer who walks in with this RC $1 certificate may become a lifelong fan of the restaurant!? There is nothing wrong in offering very limited number of these as a way of promotion or marketing strategy. If you don’t get any good customers out of the promotion, think of it as a charity effort. Again, I am only saying offering very limited number of these $1 certs.

-Subba
http://sterizon.com/