We all know the attractiveness of anything given for FREE (I’m looking at you, members of the Costco free lunch club). But free comes at a cost to you, the business owner, and may not always bring the results you were expecting.
In his book, Predictably Irrational, Dan Ariely — the talented Duke University professor — explores human behaviors through a variety of experiences, and the following are some of his findings, as applied to the restaurant industry.
Pretty obvious, you’ll say. But your costs as a business owner can be much higher than you think. Let’s say you offer free sodas with the purchase of a meal. If 99% of your guests buy a meal anyway, that means that you are preempting the sale of higher margin items, such as beer. At the end of the day, your promotion costs are not merely the few cents of the cost of the sodas but also the lost opportunity of selling beer. This could have a dramatic impact on your sales figures, so think carefully about all the potential repercussions of an offer.
As Dan Ariely’s experiences show, when offered a free option alongside with a highly discounted option, most of us will go for the free offer. However, the reason why we choose free above anything else is because, well, it’s free and we will take it even if we don’t need or want it. A good example would be a store offering cat food for free and people taking it to feed it to feral cats. The same holds true for your business: if you offer something for free, but the customer would never have ordered it in the first place, this is not money well spent. But how do you work around that problem? Understand the goals of your promotion and plan accordingly. If your goal is to promote a new dessert, offer a smaller free sample with the order of any other dessert. A new beer? Offer a small sample and give a coupon with it.
As Groupon business users have learned the hard way, heavily discounted coupons or free coupons won’t always bring the right crowd to your restaurant. (I am 100% guilty of this.) If given a free or heavily discounted coupon to a restaurant, customers will drive to that place to get a meal but will never set a foot in the restaurant again. Either they are not willing to travel across town for it at full price, or they don’t like the food that much. In other words, you will never recoup the cost of that offer. So beware of those coupon sites and make sure you are in control of the quantity of coupons sold.
And that was some FREE advice (or was it?).
by Marylise Fabro
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