Discounts: Race to the Bottom?

The discount craze has been raging in the past few months in restaurant land. With each new offer or promotion (this year, they’re disguised as boxes) the competition gets hairier and the pressure for discounts is amplified. QSR and Casual Dining are bundling and cutting prices more than ever, it seems.

And as these offers come to an end, it seems that traffic does too. In data released by MillerPulse, when QSR slowed discounts at the end of Q2, average receipt increased (yay) but traffic counts dropped. Quite a bit.
Prior to that, when traffic was up, average check was down .6%. Presumably this is because people were coming in for the discount and not indulging in up-sell items.

The challenge for over discounted brands is to wean customers off of those. Often, this means weaning management off of discounts as well.

So, now we’re watching the industry chase it’s tail. Brands offer discounts to fight lagging traffic numbers. In doing so, they’ve trained a segment of their customers to expect a lower check. When they try to take price or to simply end the discounting, those guests stop visiting. Traffic counts suffer in the absence of those price breaks.

At the same time, competition has never been tougher. Grocery, mail-order and a ton of delivery services are cutting in to visits. Each brand looks at their competitive set and tries to figure out what others are doing to gain share. Discounts.

Discounts can be a powerful tool if used with discipline. The QSR discount model is a very compelling offer, surrounded by compelling upsell items at point of sale to take that original check up in value. The guest still feels they got a deal, and the brand earned their share. When done well, a great offer drives traffic along with increased sales from effective point of sale and employee sales technique.

And like anything that feels good, it can be easy to get hooked. One discount follows another. That’s when traffic starts to wane. We have studied brands that have big success driving traffic with a vehicle like FSI, and quickly turn that into a “strategy.” In one case, a casual dining brand got up to 19 FSI in a year, getting almost no return along with diminished traffic the rest of the year.

The challenge for over discounted brands (much of the current industry) is to wean customers off of those. Often, this means weaning management off of discounts as well. Here are 3 keys:

1. Create something of value elsewhere in the menu beyond discounts.

This might be what we see McDonald’s doing with their McPick menu today. Replace the discounts with items that feel discounted, which might just be a new combination or bundle, or presenting items in a new size or format along with a new price. Train guests not to wait for the new discount and get them used to ‘everyday value.’

2. Distract regulars from discounts with new items.

They know the cost of their favorite dish. They know when it’s discounted. Based on items that have been heavily discounted with a high take-rate, look for inspiration for new items that the same audience will like, and will distract from cost. Added as a series of LTOs, brands can reset expectations on menu and pricing to create a new relationship with guests.

3. Be willing to lose some discount hunters.

Traffic is not traffic. As we see in the MillerPulse data, even when traffic was up recently, sales were down by half a percent. It takes discipline to not just chase down anyone who will place an order and trade up for guests who know you brand is worth the full check. Over time, brands can move up to guests who don’t come just for discounts.

Discounting can be a powerful tool, and an addictive drug to brands and consumers alike. What we’re seeing now is the hangover for both. Believe it or not, consumers have discount fatigue. With so many options, dining brands will have to come up with new ways to bring guests in the doors.

Growing an emerging brand: three key factors for success

watering can, new product, CPG

Growing an emerging brand in the CPG space takes a special focus and attention.

A growing consumer package goods company can efficiently and effectively create demand and generate trial with limited distribution and a limited budget. The way it’s done is by doing a few things well and with great precision.

It’s important to remember when setting a precise strategy, you must sacrifice some things you think you want to do. Staying focused on what’s working will prevent you from straying to random tactics and getting off message. There are three critical components to an effective marketing strategy for most emerging brands. They’re designed to focus your limited budget on the optimal tactics and messages through a test and optimize approach. More on that later. The three critical components are: geo-targeting, target audience, and optimal messaging.

1. Geo-targeting

Geo-target your promotional investment in your best markets. Examine your ACV in each market to ensure people will be able to find your product once you create an interest.

You need to understand who your best and most likely customer is.

Start by identifying your top five designated market areas (DMAs) based on where you have the best distribution. Your primary objective is to generate awareness so you can generate trial. Several great ways to generate that awareness include: paid search, paid social, and online video. All tactics can be implemented relatively inexpensively.

2. Target audience

Have a precise target audience for your product. Do not try to reach broad demographics like “Adults 25-54.” It’s not efficient. You want to understand who your best and most likely customer is. You’ll base this not only on gender and age, but also with a clear psychographic profile. Understanding who your raving fans are is important so you can use all the digital targeting tools available today to go find more people with the same profile. When setting your target there are several tools available, like social listening, Facebook Insights and Google Analytics.

3. Optimal messaging

Create optimal messaging that will resonate, engage and motivate your audience. Because you are implementing the test and optimize model, there is no need to limit your message options. Since you’re early in your marketing efforts you want to test a variety of approaches to determine which ones resonate with your audience and creates the best click through rates and conversions.

As you learn what advertising messages and types are generating click through and conversion, you optimize your advertising spend on the most effective ads.

Consumers are looking for new products all the time. They’re interested in new flavors, new options to replace old favorites or they’re just trying new products out of curiosity, and they use a variety of channels to seek them out. Whether it’s search, social channels or websites; emerging brands need to get their message out there so we can discover your great new product.

Enough about Millennials already: Can we talk about another powerful consumer group please?

Let’s decelerate the conversation about the importance of Millennials. Sure, they are 80 million strong, and seem to be the clear consumer target for most brands, but marketing efforts are too focused around Millennials. It’s time for brands to bring Baby Boomers back into the picture.

Baby Boomers’ free-spending tendencies and access to greater than average disposable income make for an intriguing, lucrative market segment for your brand to target.

Instead of focusing our attention on a potential market, we should turn to a more promising demographic- the tried and true Baby Boomer generation.

Even though Millennials represent a major potential buying force, our findings show they are reluctant to actually spend money. Millennials face an overwhelming amount of college loan debt, which keeps them from contributing economically to our society. Millennials aren’t eating out and they aren’t buying homes. In fact, one in five are boomerangs, meaning they live in their parent’s homes, and are eating at home more often than the general population.

A new lens

In 2015, there were an estimated 74.9 million Boomers. They have a spending power of $2.3 trillion, and some estimates show this demographic controls 70 percent of disposable income in the U.S.

Boomers, free of family financial obligations and focusing on new possibilities, will likely spend in ways that Millennials won’t or simply can’t. Since many Boomers have more disposable income, they are eating out more. In fact, Boomers buy an average of 193 restaurant meals a year, according to Restaurant Hospitality Magazine.

Boomers are also easier to reach and engage with as a brand, because so few brands are even targeting them. Baby Boomers spend the most across all product categories, but are targeted by just five to 10 percent of marketing campaigns, according to Jami Oetting of Hubspot.

Strategy, the secret sauce

Millennials are often praised for their tech savviness, but boomers are equally as interested in technology. A Google/Ipsos study of consumers 45 and over found that the amount of time spent on the Internet and traditional television viewing were comparable. The study found that the Internet is the top source for Boomers to gather information on topics of interest. If Boomers are flocking to the Internet, your brand better be there too.

By implementing an Internet marketing strategy, your brand can measure engagement and optimize campaigns over time. So combining the use of linear TV along with a layer of measurable tools like search and email marketing, a campaign has a precise mix to reach and motivate the Boomer audience into action.

No matter which channels you use to market your brand, you need to understand how diverse boomers are. Because of the diversity, marketing segmentation is essential. Segmentation by life stage and other factors is important to effectively get the right message to the right audience at the right time. Segmentation is key.

The Holy Grail

The holy grail for restaurants is frequency of visits. One of the most important variables to frequency is loyalty. And Boomers are brand loyal when you meet their needs.

Creating a lifetime customer is the most important reason why you should be focusing on this audience.

Completely ignoring Millennials is out of the question. Their importance to brands is clear−they represent the future for the brand. Just don’t target Millennials at the expense of Boomers.

Pretty soon you’ll hear about Gen Next and why you should target this emerging group. But until then, trust me, Boomers will reward the brands that speak to them on their terms. If you provide a level of hospitality that respects who they are, they will reward you by opening their wallets and opening them often.