The restaurant had launched a daily deal promotion six months before. Half-price sushi at a good restaurant is a great deal for consumers (more interesting than the eyebrow waxing and air duct cleaning deals I usually see). Sure enough, the restaurant was suddenly and constantly full, and I saw Groupon printouts on most of the tables every time I went. From all the traffic, it looked like a very successful restaurant — until the moment they went out of business.
The daily deal bandwagon of the last couple years has created a number of cautionary tales like our neighborhood sushi restaurant. I think the lessons apply to any premium brand that uses price promotions, a tactic that long predates Groupon of course.
There’s a role for price promotions to bring in new consumers. But tread carefully. Deep discounting carries seen and unseen costs. Beyond the discount itself, it can bring in deal hunters who will never buy full price and it can train your customers to only buy you on deal. If you’re not careful, it can irreparably impact your profitability.
Here’s an early cartoon I drew way back in 2003 on the deep discount mentality.
I also drew this cartoon, which is now part of the official Harvard Business School case on Groupon.
There are many ways to create value for customers. Instead of just dropping price to bring in new ones, give your current customers something to talk about.
(Marketoonist Monday: I’m giving away one signed print of this week’s cartoon. Just share an insightful comment to this week’s post by 5:00 PST on Monday. I’ll pick one comment. Thanks!)