Pricing Faux Pas?

You be the judge: Is this good pricing strategy or a pricing faux pas?

Background

My wife and I frequent a restaurant three to four times a month for three reasons:

1. It’s only five minutes from our house.
2. The food is consistently good.
3. Their prices are similar to other restaurants with similar fare.

Recently I’ve been getting emails saying that they haven’t seen me in a while and they’d like to offer me $5.50 off my next purchase of $25 or more. All I had to do was click on the link to get my $5.50 reward.

Let’s examine this from both the restaurant owner’s and customer’s perspectives.

Owner’s perspective

Ostensibly, the owner is trying to generate greater revenues. He’s hoping to accomplish this by offering discounts to existing customers…seemingly, to customers who haven’t frequented the restaurant in a while.

Customer’s perspective

As a regular customer, my initial reaction was disbelief. I couldn’t believe that I was getting this offer, especially since I had just gotten a take-home order the previous evening.

Of course, I accepted the offer…who wouldn’t enjoy getting a discount on what they typically buy. I have gotten three of these offers in the past two months and have taken advantage of all of them.

Would you consider the restaurant owner’s pricing strategy a success or a pricing faux pas? What’s your rationale for your choice? Please take time to answer these questions for yourself before reading the next segment.

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My take

To me, this is a pricing faux pas for several reasons.

First, discounting cheapens customers’ perception of the quality of your offerings. Customers assume that If your offering isn’t selling at current prices, your pricing doesn’t reflect the quality you’re touting..

Second, I was receiving this “reward” under the premise that I wasn’t visiting regularly, when in fact I was frequenting the restaurant three to four times a month…virtually weekly. Why would you offer a discount to someone who had demonstrated a willingness to pay full price and do so with some regularity?

Third, the “reward” has not changed my buying habits. I’m not frequenting the restaurant more often because of the discount. My wife and I go there when we’re in the mood for their food or when we want quality food and convenience.

Fourth, this owner has drunk the cool aid on rewards programs because, on top of this latest discount, he has a rewards program further reducing the price of his offerings. If this initial rewards program had proven successful, would he be offering additional “rewards?”

In my experience, businesses win and retain loyal customers…customers who are willing to pay full price…by providing exceptional experiences for their customers. Something this restaurant does, not just with quality, tasty food, but with exceptionally friendly, professional service.

I can’t help but wonder whether this restaurant is losing customers because of its discounting or whether they’re trying to replace revenues lost through their initial rewards program.

Regardless of what’s motivating their desire for more revenues, their approach of adding discount upon discount in the form of “rewards” will not produce the desired result. What the owner fails to realize is that price is part of the message when it comes to gaining customer trust. When the price businesses charge supports the company’s quality claims, customers trust that the claims are legitimate.

I you tout that your offerings are greater than your competitors’ offerings, whether that’s through higher quality, greater dependability, a sales force committed to helping customers make the right decision, superior service, incredible friendliness, or a fun experience, then your price must be higher than those of your competitors to make your claims believable. Of course your actions have to be consistent with your claims, but congruency between your claims, your actions and your price is how you generate more business from existing customers…and attract new customers as well.

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