Offering discounts to customers seems beneficial on the surface, and it can be, but it can also be bad for business. Sure, you're getting new customers through the door, but will your new business make up for the losses stemming from your discount offer?

Price discounting is both an art and a science. When done improperly, it can negatively affect your bottom line. So, what is a consequence of "discounting" when talking in economic terms?

There are two primary issues with restaurant discounts:

  • Profit loss
  • Brand devaluing

Profit Loss

The first and most obvious issue with restaurant discounts is the loss of profits. No matter the percentage of the discount, it will eat into your profits. The bigger the discount, the greater the loss.

You may get more customers through the door, but that doesn't necessarily mean that they will return. If they can get a great deal on a meal at your restaurant today, they may not want to come back tomorrow and pay full price.

In many cases, coupons bring in one-and-done customers. If a large percentage of your coupon customers don't convert to repeat customers, your discount promotion will do little more than lower your profits.

There's also a good chance that your loyal, repeat customers will use your coupon or discount offer. These are customers who would have eaten at your restaurant anyway, so you're just giving margin away with your offer.

Brand Devaluing

Perhaps more damaging than profit loss is the damage that discounts can do to your brand's reputation. 

Are they that desperate for customers that they're discounting their food?

Discounts can cause customers to question the quality of your:

  • Food
  • Atmosphere
  • Servers

Furthermore, if your restaurant becomes known for offering discounts, customers will come to expect them and will be very unlikely to pay full price for a meal. At some point, your discounted prices become the "normal" price and anything higher will be viewed as a rip-off by these coupon customers. In the worst-case scenario, the restaurant becomes entirely dependent on discounts.

How to Do Discounts the Right Way

There are ways to offer discounts without doing too much damage to your profits or your reputation.

When developing any discount strategy, it's important to make sure that it's feasible and practical. Can you truly afford the discount you have in mind? Yes, you're going to take a hit on your profits no matter how little of a discount you offer, but the question is: will this promotion cost you a lot more than it's worth?

One key important thing is to make sure that you don't get stuck in the vicious cycle of offering steep discounts regularly. Here are some discount ideas that help you avoid this:

First Time Customer Discount

Offering a discount to first-time customers is a great way to get new customers through the door and, hopefully, convert them to repeat customers. The biggest challenge in the restaurant industry is verifying whether the diner is truly a first-time customer.

One way to verify first time customers is through a loyalty program. Those who sign up for the program can get a discount on their first visit when presenting their loyalty card. The card can verify that this is a new customer and prevent that customer from using the first-time discount again in the future.

Holiday Discounts

Holidays are ideal times to launch discounts. For example, you may offer discounts or special pricing for:

  • Mother's Day brunch
  • Thanksgiving lunch
  • Father's Day breakfast
  • Memorial Day lunch

Holiday promotions can help you promote with other restaurants and also give you a chance to launch some creative promotional events.

Discounts During Down Times

Every restaurant has slow periods or slow days of the week. Small discounts can get more customers through the door during these sluggish times.

Maybe your restaurant is slow during lunch hours or certain days of the week. It may be worthwhile to focus your discount promotions around these periods. Don't offer too steep of a discount. The goal is to remain profitable. 

2-for-1 Specials

In recent years, 2-for-1 specials have become increasingly popular in restaurants. But for this promotion to be effective and profitable, it should only apply to certain items and should only be available for a limited time. 

Keep this offer limited to lower-cost entrees. If you want to keep this promotion going, try rotating menu items to see which items customers love the most.

Limited Time Discounts on High-Margin Items

It can be challenging to figure out which menu items to discount. Try focusing on high-margin items that will lure in customers, but only offer this discount for a limited time to keep costs under control. 

For example, you may offer a discount on a premium entrГ©e for a week. Hopefully, customers will keep coming back for more. Again, it's important not to offer too steep of a discount - just enough to entice customers to bite.

Alternatives to Discount Pricing

Figuring out how to discount a price can be difficult. Sometimes, discount marketing is just not the right solution for a restaurant. Fortunately, there are other ways to lure in customers without having to devalue your food or brand.

Promote a Limited Time Offer (LTO)

One simple way to bring in customers without using coupons is to promote a limited time offer (LTO), such as a seasonal menu item. The LTO should fit your brand and your menu. 

When done properly, an LTO can entice customers (new and repeat) to come in and try your new or seasonal menu item. These types of offers also stir up FOMO, or fear of missing out, which can really drive customers through your door. We all want to do what our friends are doing, and if our friends are all trying your new seasonal menu item, we want to, too. 

If you can come up with a seasonal item for each season, you can always have something new and around for only a limited time.

Launch a Loyalty Program

Loyalty programs are a great way to reward loyal customers and convert first-time visitors into repeat customers. 

Loyalty program members can receive promotional discounts, perks or other rewards after accumulating so many points or dining at your restaurant so many times.

Customers love loyalty programs, and they help businesses cater to their most loyal customers.

Offer Perks

Instead of discounts, try offering perks or gifts to customers. How many times have you heard friends rave about the free bread they had at a restaurant? 

Some restaurants have freebies that are so good, it's half the reason customers come back. In most cases, the costs of these items are negligible compared to the business they bring in. The best part about these types of perks is that customers are still paying full price for their meals.

You can also offer some perks, like freebies before meals. Stir things up a bit and offer something customers won't expect, but make sure the item fits your brand and menu.