The Discount Dilemma

Last November 4, you could’ve just about made a day of it: free Starbucks Coffee and a Krispy Kreme donut for breakfast; a free Chick-fil-A sandwich and Ben & Jerry’s ice cream for lunch. If you were ambitious, you no doubt could have found a local dinner freebie, too.

Nice for you. But the question remains whether it actually did that bevy of beneficent businesses any good. Starbucks continues to shutter stores. And though Krispy Kreme stock has rebounded, recovery has not kept pace with the broader markets. Shares languish at less than one-eighth of their former selves.

Ben & Jerry’s is still dogged by a loss of indy prestige, having “sold out” to multinational conglomerate Unilever. Chick-fil-A was already blowing the doors off and arguably didn’t need a sales boost.

So what is the ultimate goal of deep discounting and freebies, exactly?

Well, duh. We all get that the paramount motive is to boost sales. But there are peripheral motives, as well. There’s reassertion of brand identity — hipness, empathy with the customer, social awareness, off-the-wallness or whatever. There’s the idea that deep discounts open the door to add-on sales and give profits a jolt, regardless of whether discount customers become regulars. There’s the hope that if you can just get people to cross your threshold, they’ll discover/rediscover what they’ve been missing and add/return you to their list of favorite places. And finally, there’s the big, uncategorizable, unquantifiable factor called “buzz,” aka “free publicity.”

Anyone will tell you that buzz is beautiful. But the people who launched the “Got Milk?” juggernaut can also tell you — though they’d probably rather not — that despite 15 years-worth of priceless publicity (attested by 1.4 million Google hits) and mostly flattering imitation, the popularity of milk has increased exactly zilch. During the year of the Milk Board’s biggest-ever ad spending increase, the corresponding change in milk consumption was (drum roll, please) -0.01 percent.

Like hordes of other bargain-lovers last election day, I flashed my “I voted” sticker and claimed my free Starbucks brew (via drive-through, so no in-store experience, no add-on temptation), then went back to buying my coffee at the same old place, where I kick-start my caffeine high with a bigger, better-tasting cup of coffee at a smaller, more palatable price. Starbucks won my appreciation … but not my business.

So what do QSRs need to consider before launching a freebie or deep discount?

1) Understand exactly what you expect from your effort. Is it brand awareness … renewal … reinforcement … redefinition? Honestly assess whether this promotion will deliver the desired results.

2) Be realistic about a likely return on investment. What’s the typical promotional spike for your business? Will a deeper discount bring you more dramatic returns … or diminishing ones?

3) See if you can package a promotion that actually increases your margins. An item that’s perceived as a good value by customers doesn’t have to be a money-loser for you, as Subway has demonstrated with its popular five-dollar footlong sandwich.

4) Consider the potential long-term effects of deep discounting. Are you setting a precedent for cheap deals that your customers will expect you to continue? Or are you tying your promotion to a one-time event, thus making it clear that this is a truly special thing?

5) Consider whether the promotion you have in mind is consistent with your brand. Even a prestige brand can promote value without diminishing itself, but the way the promotion is structured is a large part of this. You must judge whether a freebie, lagnappe, BOGO, coupon, pris fixe or frequency reward is the best fit with your brand status.

6) Finally, factor in consumer skepticism. When Quizno’s launched its Torpedo sandwich to combat Subway’s $5 footlong, savvy diners compared the two head to head, then took to the blogs, deriding the Torpedo as “a sandwich on a breadstick.”

Which illustrates the other side of buzz: the old saying that “all publicity is good publicity” ain’t necessarily so in this Internet age. If you hope to generate scads of free buzz with deep discounts and freebies, just keep in mind that you can get less than you pay for.

Time to UNthink “Free”?

In the world of unintended consequences, KFC takes the prize with its Kentucky Grilled Chicken meal giveaway, unleashed this week with a word from Oprah Winfrey. To read a KFC spokesperson’s follow-up comments, one might infer that an angry consumer reaction was, well … UNthinkable. But was it? In developing the promotion, KFC seems to have left potential problems “UNthought”:

• The instant gratification problem. KFC apparently figured they could average out traffic with a coupon good for two weeks. But “I want it now,” is deeply ingrained in human nature. When the word went out to more than 7 million viewers of Oprah, fans practically sprinted to their PCs, immediately overloading both Oprah and KFC Web servers. Then they texted the news to non-Oprah-watching friends and Tweeted it to the rest of the world as they drove to the nearest KFC.

• The technology problem. Servers overload. Computers don’t all work the same way. Printers print differently from one to another. Coupon seekers reported myriad difficulties in accessing a Web site and printing a coupon. Some had to download special software, cited by one Web professional on a blog as evil “malware.” Others got caught in an endless loop as they tried to get to the coupon from Oprah’s Web site. Still more were told that they had printed their allotted number of coupons before they had even gotten one to print successfully.

• The fraud problem. Print quantities can be “gamed” via PDFs and screen captures. It can be hard to tell the difference between a black and white coupon produced by a printer and one produced by a copier. KFC laid itself open to unlimited fraud by making available a coupon that could be easily mass produced. While some customers reported that they were not allowed to print more than the designated four coupons, others reported printing (or copying) dozens.

Even after the official coupon-printing period had expired, I was easily able to track down a PDF online and print a coupon. Is it valid? I have no idea. There are dozens of conflicting online reports about coupon barcodes, with some sources reporting that there is only one — from the viral PDF I found, perhaps? — and others mentioning coupons with unique bar codes.

I could find no information on the KFC Web site specifying that my coupon must have a unique barcode. All I know is that I have an official-looking printout with a dot-scan barcode (as required in small print) and that my coupon has not been “photocopied, mechanically reproduced or altered” (as forbidden in small print). So why shouldn’t it be honored?

• The franchisee problem. Overwhelmed by the response to the giveaway, KFC franchisees scrambled to devise a workable plan for their restaurants. Some sought to limit giveaway hours to times when traffic was lower. Some designated a certain number of “promotional” meals and refused to honor coupons after they’d reached that number. Others — either misinformed or prevaricating — said that certain coupon bar codes were invalid (see above), or that coupons not printed in color would not be accepted.

The thing is that none of these caveats appears on the coupon. Most consumers have no clue about how franchising works and they couldn’t care less. They just know that the restaurant they’re in has a sign with Colonel Sanders’ face on it and that means their coupon should be accepted.

• The readership problem. The pieces of chicken to be included in the consumer’s free meal were specified in 4-point type as “managers choice.” That didn’t prevent irritation among consumers who wanted white meat, but got dark meat instead. Likewise, “while supplies last” was all but unreadable by anyone with less than 20/15 vision.

• The entitlement problem. When you tell people they’re getting something for free, something strange happens inside their heads. Suddenly, they assume it is owed to them. When they don’t get it (especially after having spent literally hours — as some did — trying to print a coupon), they get M-A-D, MAD. It does not matter to them that they’re not paying for their meal. They have invested time, energy and anticipation in a promise from KFC. And they expect a return on that.

• The time problem. When hundreds of customers converge on a QSR and demand service, the Q just falls right off, leaving customers to experience long and exasperating wait times. And this isn’t only happening to coupon-bearing customers who might be willing to accept a little inconvenience in exchange for a free meal. Regular, loyal, paying customers also become the victims of coupon chaos and their relationship with the franchise can be permanently damaged as a result.

• The blog problem. KFC has yet to apologize to customers for issues with the promotion and Oprah’s Harpo Productions has yet to even acknowledge them. Meanwhile, the ether is crackling with recriminations from thousands of commentators who have nothing good to say about either sponsor. Instead of praise, bloggers are posting unhappy personal experiences touching on every aspect of the giveaway, and reporting on angry throngs of disappointed customers at KFC locations. As a National Public Radio commentator dryly observed, you do not want “to spend the day after what should have been your moment of triumph clarifying that ‘there was no riot.’”


Clearly, KFC failed to give adequate critical thought to the particular difficulties that they and their franchisees might encounter in executing a meal giveaway promotion. The resulting damage to their brand caused by this thoughtlessness will not soon be repaired. As it turns out, the domain name of the franchise’s micro site, unthinkkfc.com, may be the only be part of this campaign that makes sense to customers.


Update (5/8/09):

If they couldn't save face, they could at least try to salvage profits ...

Working harder than he should've to sound happier than he ought to have been at finding himself in the midst of a PR debacle, KFC President Roger Eaton appeared yesterday in a video posted to YouTube and announced that the company was suspending its free meal coupon offer.

To quote the great Claude Raines, "I'm shocked. Shocked!"

With painfully forced enthusiasm, Eaton describes the "overwhelming response" to the promo and enthuses that "Clearly, America loves the great taste of Kentucky Grilled Chicken." Well, no, that's not clear at all. Clearly, America loves free stuff, but how can they know they love the taste of KGC if they can't redeem their coupons?

Eaton cheerfully goes on to explain that due to a level of response that KFC "never expected" (um ... why? They were offering people $20 worth of free food, for cripe's sake.) the company was forced to implement a new rain check procedure by which customers could request a replacement coupon in the mail.

Then, once again, KFC proceeds to bungle its communication.

"Please bring your coupon to a KFC restaurant or visit KFC.com and in exchange we'll send you a rain check for another time," Eaton promises.

The implication is that one may apply for a raincheck on the Web. Ix-nay on the Eb-way. The site directs visitors to take their coupon to KFC. So a trip to the store is mandatory. The bloggers are already grousing.

Additionally, Eaton consistently refers to "coupon" and "meal" in the singular case, though the original promotion offered four free meal coupons per person. So, can I send four coupons? If I do, will I receive four rain checks or just one? Is KFC just addicted to cliffhanger endings, or did they not anticipate this question?

One would hope that KFC might take away a few lessons from this week's free meal fiasco. Nope, apparently not. With its latest communication, the company now ensures that the bad taste its Kentucky Grilled Chicken promotion has left in consumers' mouths will linger for quite some time to come.

The Frugal Diner: Here to stay?

Could the worst of the bust be behind us?

It’s hard to say. As of today, the Dow is up almost 20 percent from its abysmal low of March 9. Despite the daily dire pronouncements from CNN that we could still be on the brink of economic catastrophe, fears of the Later Greater Depression seem to be receding.

On the other hand, a Nation’s Restaurant News article today announced that consumer spending had taken a significant dive in early March, down more than 10 percent compared to January and February and more than 32 percent compared to the same period a year ago.

But that was early March, and as stated above, the Dow has moved convincingly northward since then.

Whether now or months from now, we can be sure that the market will recover and consumer confidence will rebound. When this happens, the death grip that even the comfortably flush have maintained on their wallets will ease.

To which restaurateurs from all corners reply, “Yes, but by how much?”

As Americans climb out of the consumer confidence basement (feeling a little like Auntie Em venturing out of the root cellar after an F5) … then what? Will optimism swiftly return and have consumers spending again like there’s no tomorrow? Or will caution prevail and keep consumers saving like there’s definitely a tomorrow … and it’s going to be absolutely terrible?

Most economists agree that the economy will show signs of recovery in the second half of 2009. Almost all also agree that increases in consumer spending will be more gradual than in past recessions, when spending has come roaring back based on pent-up demand. This time, it was consumer demand — specifically for credit and real estate loans — that created the bubble that burst so suddenly and dramatically.

So the likely answer is that consumer spending will resume … but with the housing market still gasping for air, working Americans desperate to bolster their diminished 401k plans and a pervasive sense of national animosity toward conspicuous consumption, spending won’t begin to reach previous levels for years, not months.

As markets and jobs stabilize, consumers will slowly but surely begin to trade up again in their choice of restaurants, just as they traded down when things were looking grim. But with a bit more hesitation this time. A key component of this trade-up will be the attraction of greater perceived value at more expensive establishments.

The best way to encourage this perception is to continue to promote the value-oriented menus, pris fixe dinners, two-for-one specials and combos that helped keep restaurateurs from losing loyal customers from defecting during the downturn.

The message, of course, must be freshened up from the “we’re helping you in hard times” mantra that consumers have heard throughout the recession. A new, optimistic message will be in order.

Additionally, restaurateurs will need to consider freshening the offers themselves to come across as being responsive to a changed outlook; diners will be looking for something new, a break from the value-menu staples that got them through their budget crisis. As long as that break doesn’t look too dramatic. And this presents an excellent opportunity to begin to walk margins back to a more comfortable place. “Walk” being the operative word.

Your new message, new look, new offerings and new specials will signal to your customers that you’ve weathered the downturn with them and are looking forward, just as they are, to better times to come.

Even if they don’t come quite as quickly as any of us would like.

What Do You Do When the Party’s Over?

Lent begins today. So? Why mention this in a restaurant blog unless it’s a reminder to stock up on fish fillets?

Well … actually, Lent is worth mentioning because it presents a fitting parallel to the economic climate restaurants find themselves in just now: After the mad abandon of the Mardi Gras party, a period of sober reflection.

Right now, plenty of operators are dazed and wandering in the desert of diminished expectations, wondering exactly when the refrain changed from “We’re in the Money,” to "Brother, Can You Spare a Dime?" and when — if ever — they’ll hear “Happy Days Are Here Again.”

All they know for sure is that it was Fat Tuesday and then, suddenly, it wasn’t.

But the thing about Lent is that we’re supposed to wind up better for having spent 40 days in a process of self-reflection, right? This is absolutely key, and dazed wandering absolutely does not count as self-reflection. So, the question becomes “What do we do during this time of consumer self-denial?”

The answer lies in a three-step process:

1) Stop wandering. In difficult times, the natural reaction is to bounce from gimmick to gimmick hoping that one will appeal to some demographic group that still has cash they’re willing to part with.

Stop. Just stop.

If consumer perceptions are hard to change in good times, they’re downright impossible to budge in hard times. If you’ve built your image as a family place, do not think that you will begin to draw millennials by firing up Jack Johnson on the PA and mentioning WiFi next to the $1.99 kids meal promo in your next FSI.

You are what you are. This is the time to refine your focus, not redefine it.

2) Start thinking. So, okay. Things are slower. Be still. Sit. Breathe. Take time out while you have it and contemplate where you were (and how you got there), where you are now (and why), and where you want to be when the music starts again. Because it will. It always does.

Make a list. Make many lists. There’s nothing more clarifying than seeing your thoughts on paper.

Who loves you? Why? What have you historically done exceptionally well? What do you do that nobody else can? How can you communicate this to the people who love you … and others like them who have not yet discovered you? How can you help them justify spending money on your products?

Remember: It’s the economy that’s changed, not the consumer. People still crave the same things, still aspire to the same experiences. Your task is to figure out how to package your products with empathy — that is, to appeal to your customers’ traditional cravings in a way that allays their insecurity about spending.

3) Begin planning. The U.S. economy will revive. Consumer confidence will return. Give consideration now to what you will need and want to implement when the time comes, from POS systems to marketing materials to franchising packets. In the process of looking ahead, you’ll uncover not only long-term objectives, but also some surprising short-term opportunities.
Again, it’s that pen and paper concept. When you begin to formalize plans, all sorts of related ideas and opportunities emerge.


Finally, during this time of self-reflection, consider this: the further you hold a looking glass from yourself, the more you see in it. Have someone with considerable distance from your enterprise hold the mirror for you — and the earlier in your “wilderness experience,” the better.
A responsible outside marketing and promotions specialist will certainly help you in the process of refining, list-making and preparing. And they’ll do it within the context and perspective of your broader market, not with just a close-up view to your brand.

Start now. This could take more than 40 days. And you’ll want to be ready when the music starts again.