Discounting hasn’t worked so far for Chili’s and Applebee’s who began offering 2 for $20 meal deals. The problem is total customer traffic is off and these discounts tend to amplify the problem because profit margins are reduced on the customers that do come in. Even P.F. Changs, and Benihana are seeing 10%+ slowdowns in sales just from a quarter ago.
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Ryan is an attorney and valuation specialist residing in Chicago. He chronicles his thoughts and research on FranchisePundit.com. You may reach him by email ryanknoll@gmail.com or mobile telephone 312-715-8115.
I’ll give you my real life experience with this issue.
Discounting work very, very well if it is implemented to increase market share or as part of an overall marketing strategy. It does not work well if you are trying to drive short term profits.
In this market, many of my clients have dusted off the old business plans I developed for them for eliminating their competition. In other words if they followed my advice for years they kept tabs on their competitors, who their suppliers are, watched their expansions, and nosed around to know their financial position, who hold s the paper etc(in some cases they have gone out and acquired the loans for their own portfolios) .and they have a pretty good idea what it will take to take their competition out. Recessions are great times for the established to draw on their reserves and begin discounting to eliminate the competition and thus take market share! It is also the time to acquire expansion assets for pennies on the dollar. The name of the game often is staying power, and you can readily eliminate much of your competition in lean times.
In terms of an overall marketing strategy. Lean times are times to innovate, to try out new ideas and solicit feedback from established customers, thus strengthen the bond, and to wow new customers> Lean times allow you the time to develop relationships. Utilize those discounts to lure customers in an retain them. You can tell very quickly who is the perennial bargain shopper and whom are potential long term customers.