Question of the week #25

ImgresI spent a semester of college living in Los Angeles as an intern for Robinsons.  I worked for an incredible woman who was a buyer for the mens department.  She was tough, had lots of chutzpah and was super smart.  I had two roommates.  One came with me from college and she worked at Robinsons too.  It was part of the college program, one semester working in your field of choice.  The other was an old friend who I went to camp with as a kid.  She refused to split the cost of the newspaper being delivered every day but she would take it after I was finished and cut out the coupons.  I always found that whole concept of cutting out coupons interesting. 

Then I went on to work at Macys after college where the One Day Sale became part of our lives.  That one day would send sales soaring yet the clientelle that came in the door that day was different than the other days.  The volume would be there but many times the margins made that day were not in line with the volume created.  It was a mixed bag. 

Fast forward the Internet comes along and companies like Gilt and Groupon are built on the premise of deals.  That is why I chose this question as the question of the week.

Whaddya think of custom rewards apps restaurant customers will actually WANT to use?

I am not a fan of the custom rewards apps.  I am not a fan of rewards unless they are some kind of kicker for coming to the store/restaurant over ten times and you get something just to say thanks for being a good client.  The issue with rewards if that there is this perceived notion that you can build your business on constant deals and sales.  You can't.  Customers who love the daily/monthly deal through services just follow those deals.  They have absolutely zero loyalty to your business.  They are shots in the dark just like the One Day Sale.  If you can't offer them a deal every time they walk in they are not interested in your business.  In order to give away those deals you have to do more volume in order to cover the slashing of your margins. 

Gilt Groupe built a business around the deal.  Trust me, I know how big the business is but how long does that concept last.  The original basis was that manufacturers had merchandise that they had to get rid of because it came in past the date or they made it and nobody bought it for their store.  Gilt Groupe is the perfect place to quickly get rid of the inventory and recoup the costs.  The following year when those manufacturers are looking at anniversarying that sale they need to figure out how to do it.  I am pretty sure they end up manufacturing goods at a lesser quality in order to make those numbers.  That is not high end merchandise at a bargain but low end merchandise at the right cost. 

I'd rather see a business figure out how to grow by providing a real service to their clients that want to return for the food, the merchandise, whatever it is because they are loyal customers.  There is no doubt that airlines use this method in order to fill the seats in the plane.  Every day the price is different.  I always have this fantasty that everyone stands up before the plane takes off and says what they paid for their ticket.  It would be so eye opening.  Bottom line, I believe that creating a killer brand with loyal customers is worth a lot more in the long run than the constant sale and deal to draw them in. 

Comments (Archived):

  1. Patrick Campi

    Hey Joanne, I come from 30+ years in the restaurant space and have teamed up with my tech friends to bring something to this area. It saves merchants $ and gives “regular” customers real discounts every time they come in. As you may know the Groupon thing has become a real turn off for most restaurateurs. Usually a large loss for one time customers looking for a killer deal. We’re almost finished with the working alpha model. It’s mobile and social and much needed in this space.

  2. awaldstein

    “That is not high end merchandise at a bargain but low end merchandise at the right cost.”Perfect!

  3. Lisa Abeyta

    You’re exactly right. Group deals cost the merchant up front – sometimes enough to put them under – with the repayments come back over time. And the “new customers” come for the screaming deal and often don’t become a part of the return clientele. Offering rewards and discounts must be realistic for the merchant and easy for the consumer to use and must target the right sector of the market. We’re getting ready to launch geolocated coupons in the transit app in our city as the first of many civic apps featuring coupons and rewards, It has been interesting to watch the excitement from both the merchants who see the opportunity of targeting people who pass by their stores every day and from the consumers who like the idea of the coupon appearing when they’re nearby. And the city is happy to have a way to track usage and defray costs of their open data initiative.

  4. JLM

    .Groupon will turn out to be one of the biggest head fakes in business. Ever.On the other hand, the notion of pricing theory being used in conjunction with a real eye toward developing loyal customers is an area that is still ripe for development and invention.Pricing theory that focuses on CTA v LTV — cost to acquire v long term value — is legitimate. What does it cost to get a new “tryer”? To develop a new customer relationship? This is a worthy focus of any business.Simply discounting to existing customers — in the mode of Groupon — is a race to the bottom and will not result in additional customer visits. And it erodes margins on what may otherwise be a stagnant level of customer spend.Existing customers can be rewarded and the impact of the discount element can be amortized over a much larger real patronage number through customer rewards programs which are the end product of a protracted number of visits.This is a win-win when the reward triggers a “new trip” which means the reward is paid for by that incremental customer visit. The ten trip and then a reward — bit old school in perception — with its attendant breakage is a legitimate driver of business.The other approach that is worthy of careful consideration is text message marketing in which a sense of immediacy and instant gratification is harnessed to drive traffic on a specific night in which the “capacity expires worthless” absent some basic level of traffic.The development of loyal customers is still an art more than an arithmetic science but there are techniques to increase the frequency of customer visits by using just a thimbleful of innovation and technology.JLM.

  5. Ella

    Thank you for this post! Just the affirmation I needed for the past three years! I used to work as a chef in a small place in the financial district and was at odds with one of the partners of the restaurant because he would always insist on “deals”. I always thought they just needed an able manager, and would always fight against the “deals” as it hurts food cost. He never saw my point and was convinced if we had “deals” on a regular basis then the customers would keep on coming, but failed to see that they came exactly for that – the “deals”, but hardly ever paid full-price. We parted ways, I now live in a different country, but said partner was still convinced I had no clue what i was talking about. Reading your post just made my day. Thanks Joanne!

    1. Gotham Gal

      trust your gut. loyal full paying customers are the best.

  6. pointsnfigures

    There is a company in Chicago, that is doing something different. Creating content-and experiences. Their customers love it. Try it out and become a customer yourself. They will be expanding soon.