Maurice Abboudi and Paul Herbert explain how to avoid the twin perils of locking the business into perpetual discounting and falling foul of the strict rules surrounding promotions
Once the domain of the pizza delivery sector, promotional activity has become widespread in the casual dining sector in response to difficult market conditions.
While sales promotions may seem a sensible strategy to lure customers away from competitors and eating at home, it can be very difficult to wean customers off discount offers. Discounting destroys margins and can create a vicious circle, with customers prepared to visit a restaurant only if there is an offer on. If discounts are not managed properly, there is a danger the business will become unsustainable. It's also worth noting that many brands that have thrived over the years never offer discounts – Wagamama and Nando's, for example.
Nevertheless, promotional activity can be effective in certain circumstances. For bars and other licensed establishments, happy hour is a classic promotion that can have a great impact on overall profit. Typically, customers will stay on after happy hour is over and be encouraged to return if the offering is good. For restaurants, a happy hour promotion during non-peak times such as a weekday lunch may be worth considering.
So how do you run a successful promotion? As with any marketing investment, it is important to look at what you are hoping to achieve from the discount and how the return on investment can be measured.
Discounts may well be worthwhile for new site offerings, for boosting sales in the first few months after an opening, or as part of a loyalty programme (although be wary of downloadable vouchers that can be used instantly and do not encourage loyalty).
Promotions and deals are strictly controlled by the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) and the Advertising Standards Authority's code of advertising and sales promotion (CAP). The CPRs proscribe certain practices, including:
- "bait and switch" advertising, where a trader purports to sell products at a particular price when it knows it has insufficient stock to supply them, and then seeks to tempt the customer to buy other, often more expensive products;
- falsely stating a product will be available at a discount for a limited time only in order to elicit an immediate purchase;
- exhorting children to buy products or encouraging them to pester their parents to buy them.
Promotions typically caught by the CAP include ‘buy one and get one free' and money-off deals. Such deals should not describe a product as free if a customer has to pay anything extra, nor should the price of the product have been increased nor its quality reduced. A common transgression in relation to vouchers and coupons is a failure to clearly communicate significant conditions affecting the promotion, such as expiry date or limited times during which a voucher can be redeemed.
Value promotions that offer an extra free product or extra volume are permitted as long as the price indications are not misleading. For example, where three products are offered for the price of two, the three must be the same size as the two regular products forming the price comparison. The nature of the promotion must also be clear – for instance, whether a 10% offer is for 10% extra volume of a product or a 10% cheaper price for a product that is the same size as usual.
Maurice Abboudi is an executive director of K10 Japanese Restaurants and Beer & Buns. Paul Herbert is a partner at Goodman Derrick
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