Why discounts are no longer enough for restaurant brands
More than ever, restaurants must adapt in real time to an ever-changing landscape of industry trends and macro-economic variables. As restaurants continue to navigate a post-pandemic era, brands have a better understanding of the changes introduced by COVID that will stay or go. Sound digital strategies and a lack of reliance on discounts during the pandemic have already proven to be key indicators of brand health and success, and lasting legacies from the pandemic.
The hospitality industry as a whole observed that restaurants without digital investments suffered, while those with digital strategies in place capitalized. When dining rooms closed, for example, more tech-savvy restaurants might fall back on already existing digital ordering channels.
At a time when restaurants were focusing unprecedentedly on prudent spending while needing to generate much-needed sales, many brands realized that an overreliance on discounts was detrimental. And with shrinking margins and the continued growth of third-party delivery aggregators like UberEats and DoorDash, that’s never been truer. The cut isn’t just a race to the bottom against third-party services, it also devalues brands and nullifies profits on owned channels.
Although there are opportunities with digital control channels—especially ones you own, such as direct orders that include data capture, enrolling customers in loyalty and CRM, and optimizing order flow for up-selling, there are also challenges. Namely, the competition.
Now that the majority of consumers have become accustomed to digital ordering, proximity no longer limits overall engagement for restaurants, but rather encourages increased competition. Restaurants are not only in competition with the businesses next door. Any restaurant that has an app or digital ordering channel accessible on the customer’s phone or computer (at their fingertips, literally) is exposing brands to competition.
The worst competition, of course, comes from third-party delivery aggregators. While it’s no secret that 3PD has built its business on retaining high commissions and a monopoly on customer data, its in-app marketplaces have become equally problematic. These 3PD apps have your product and additionally in many cases offer free shipping or some other purchase incentive. And if they don’t discount your product, they often display a competitor’s brand next to yours which Is have a discount attached. The deep pockets of companies like UberEats or DoorDash allow them to continuously offer deep discounts to win the deal at all costs.
To combat this menace, the winning brands have decided to offer something that 3PDs cannot.—access and exclusivity. These non-discount benefits enhance the customer experience and amplify the brand story, while promoting direct ordering through third-party services without steep discounts. One way to offer exclusivity is to engage customers with hidden menus featuring exclusive items made available only to customers who order directly or meet a certain spend threshold. Velvet Taco recently announced their hidden menu, which makes their signature “Weekly Taco Features” brand available for best customers.
True customer retention requires understanding individual customers and personalizing interactions with those people. This is why the data capture enabled by direct control is so critical.
Other factors explaining why discounts no longer reduce it are new digital innovations such as NFTs and the metaverse. When it comes to the creative frontier with company restaurants and other mainstream brands testing these possibilities, engagement strategies are pushed to their limits. Digital events and the current exclusivity of the early stages of metaverse adoption are giving restaurant marketers new ways to drive engagement.
So while your restaurant may not necessarily need to open a virtual storefront just yet, like McDonald’s Virtual Summer Camp or hitting an NFT – thinking about incorporating exclusivity and special access into your loyalty strategy quickly becomes a “need to have” in your marketing toolkit.
Restaurants and other businesses that have developed a strong digital strategy through direct ordering through third-party services have a higher frequency than those that only use apps like DoorDash. When discounts devalue your brand and reduce your profits, integrating engagement strategies such as exclusive access and personalized customer experiences will not only improve margins, but also generate a personalized experience for your customers that builds lasting loyalty.
Zach Goldstein is the CEO and Founder of Thanx. Founded in 2011, Thanx is a customer engagement and retention platform that helps restaurants and retailers become more digitally nimble to maximize customer lifetime value. Prior to earning his MBA from Stanford, Goldstein honed his experience in customer loyalty at Bain & Company, helping companies perfect their loyalty and rewards strategies as early as 2005.