The Discount Dilemma

 

When diners tip based on discounted prices, servers and service suffers.

If you discount it, they will come. That seems to be the mantra for restaurants taking advantage of Groupon, mobile coupons, and other discount tactics. But the big-money question is this: Will discounts attract loyal customers who come back again and again to dine at full price? And while special offers are an effective tool for driving traffic, they can cause collateral damage.

The Service Snafu

A major complaint about special offers is that diners often tip on the discounted price, leaving an undersized gratuity for the server. “Sometimes servers give poorer service to people with [coupons] because they are anticipating the lousy tip,” says a professional waiter who has worked in full-service restaurants for 22 years and writes for The Bitchy Waiter blog. “After being burned several times, it’s hard to give your A-game when you fear you’re not going to be rewarded for it.”

One way to address this problem is strategic pricing. Adam Barringer, mayor of New Smyrna Beach, Florida, and owner of SoNapa Grill, a new restaurant with locations in New Smyrna Beach and Orlando, used Odeals to offer a $50 coupon for $25. With this deal, Barringer noticed diners tipped on the discounted price. But when he ran a similar deal through Travelzoo that offered a $98 coupon for $45, customers tended to tip based on the undiscounted price. The theory: Diners willing to pay more tend to understand how to tip properly. “Our servers were happy,” he says.

The tipping situation is also an issue to train around, according to Terri Henry of Terri Henry Marketing, which is based in Long Beach, California, and specializes in restaurants and the food industry. “Servers need to look at the big picture—that overall, this is going to drive traffic and they’ll make more money with people returning and paying full price because they had a good experience,” she says.

However, Henry recommends ditching the discounts. “I constantly tell my clients not to go down that slippery slope,” she says. “Sometimes they listen but most times they don’t, creating a coupon mentality in their customers. And once you start, you can’t get the toothpaste back in the tube!”

Henry’s philosophy on discounting is “Give it away or charge full price.” Offering discounts trains diners to expect more of the same, and only visit a restaurant when there’s a deal going on. Conversely, offering something for free—like a dessert or beverage with the purchase of an entrée—feels more like a one-time, surprise gift: Enough to get people in the door but not something diners would expect on a regular basis.

But if you’re stuck on the idea of offering a coupon, heed Barringer’s experience and consider your price point. “The Odeals offer of a $50 coupon for $25 didn’t attract the customers we really wanted,” he says. But the $98 value for $45 drew customers who were willing to spend more. “Even with the $98 value, often they were spending more money on wine,” Barringer says.

Whether it’s worth it to offer discounts and coupons depends largely on your objectives. If you want to draw in diners willing to spend a lot and come back often, the tactic may backfire. However, “I think for new restaurants that are opening or if you’re re-launching something, couponing can be good,” Barringer says. And frequency matters, too. As Barringer notes, “If you do it too often, people only come based on a coupon.”