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.