Hospitality discounting and the “new normal”

As the govt EatOutToHelpOut scheme launches in the UK, our latest blog from Eagle Eye chief sales officer, Al Henderson, discusses how hospitality can maximise recovery by dealing with its discount dilemma to avoid a race to the bottom line, here.

Author: Al Henderson, Chief Sales Officer, Eagle Eye Solutions Ltd

As lockdowns imposed due the global pandemic are eased, some have asked where this leaves discounting in the hospitality sector. But, promotional marketing need not leave money on the table.

Between the UK government’s ‘Eat Out to Help Out’ discount scheme and its temporary slashing of Value Added Tax (VAT) by 15% on food and beverage (F&B), leisure and hospitality, there is plenty of help for the industry.

But, since venues were allowed to reopen with limited capacity at the beginning of July, some are still questioning the role that promotions should play in the industry’s recovery going forward.

Pre-lockdown, F&B discounts were extremely popular. But the naysayers highlight how promotional fatigue, even including ‘Eat Out to Help Out,’ which launched this week, might be doing operators and brands more harm than good.

However, a recent survey conducted by trade body UKHospitality found 84% plan to take part in the scheme, with over half of businesses planning on rolling out the scheme across all their venues.

Kate Nicholls, UKHospitality Chief Executive, stated: “It is great to see so many businesses embracing the scheme. The Chancellor recognised that our sector has been hit the hardest of all and this scheme goes some way to delivering the support vulnerable hospitality businesses need.”

Yet, some also argue the government’s other proposal to clamp down on marketing unhealthy food and drink as part of measures to tackle obesity is welcome to stem a deluge of “2 for 1” dining offers and that lockdown could have served as a ‘hard reset’ on discounting.

Understanding the discount dilemma

Pre-lockdown, hospitality promotions certainly flooded the market, But these have tended to be mass, untargeted discounts for blanket money-off offers. We now have an opportunity to change.

The industry arguably found it itself in a race to the bottom line as operators competed to attract only those consumers motivated by a discount, with no real way of building loyalty or frequency.

The discount-driven diner will remain and is an important customer segment to consider. But, while a one-off discount can drive covers, its margin-munching impact has created a discounting dilemma for operators, where maybe these bargain hunters trade up, but maybe they don’t?

The very fact that operators don’t know what long-term effect mass discounts have on customer lifetime value has also been compounded by the rise of delivery aggregators during lockdown.

Moreover, before the pandemic, some of Eagle Eye’s casual dining clients estimated customer frequency at around one visit every 12 weeks. But tracking this was difficult to do without the ability to tie sales to customer identities.

Victoria Searl, Founder of hospitality customer data analytics provider, DataHawks agrees. Searl observed: “Brands are typically capturing the data of only a fraction of their footfall, meaning that assumptions around frequency and recency are exactly that – assumptions.”

Getting to your know your customers

Now, the likes of Deliveroo and Just Eat have just exacerbated the problem for operators, gaining six months’ worth of their customers’ data, just by virtue of knowing who each customer is online.

So, operators now have an even more complex patchwork of known and unknown customer data sources. These include payment details and even stamp card or points collection promotional mechanics.

Searle said: “Many hospitality businesses have a number of valuable data sources available to them, such as customer Wi-Fi, online ordering or web pixels that, when accessed and joined together, can offer an incredible level of insight.”

But, looking back at the evolution of discounting in hospitality, it is important to recognise what it can teach us about its role in the marketing mix now, in this “new normal”.

Promotions can provide a valuable data point or a blunt tool to drive covers; operators can use them as a mass promotional tool in a race to the bottom, and we’ve certainly seen examples of this before.

But, when used correctly, discounts can be used to drive the right behaviour from a venue’s target guests. As such. promotions are just one of the tools available to marketeers in their toolbox.

“By using data to understanding your customer and their behaviour, you can use targeted smart promos to drive frequency and spend, without sacrificing margin or brand credibility,” Searle added.

Giving guests more of what they want

Indeed, hospitality discounts should now adhere to the old saying: it’s not the discount itself that matters, it’s what you do with it. Moreover, this is also what your guests are most likely looking for.

Consider that a recent Eagle Eye QikServe survey found two in five consumers would reject venues that raise their prices after lockdown, even though 26% would understand the need for the increase.

Add in the uncertainty surrounding a potential second wave and recession, and it will be hard to win guests back into venues and from online, let alone understand what they might want when they do.

If discounts don’t offer some customer insight, much as less harness loyalty mechanics that can drive one more visit or one more item per visit, the race to the bottom line will only hamper any recovery. 

Using discounts to drive frequency, however, can enable an operator to target the right customer with the right offer at the optimum time to increase loyalty and sales – without eroding margins.

Embracing performance-driven discounting

Most importantly, loyalty is an emotion, not a mechanic. Just because I buy my coffee from the same place each day does not necessarily mean I’m loyal. It could be just convenient.

Loyalty is earned over time and should be used only to reward the behaviour you seek. Only then do your customers become your best advocate and referral engine, helping to also cut the cost of customer acquisition.

You don’t get married on your first date (or maybe you do)! So, using promotions to understand the frequency and habits of guests is important. Demonstrating relevance to drive frequency is a steppingstone on that path to engagement.

Getting those guests to identify themselves so you can thank them for their custom unlocks the potential to use discounts as a precision personalisation tool instead of as a blunt instrument.

Building on the 12-week frequency rule, incentivising even one more trip per year can generate a significant increase in sales. More importantly, it’s already possible to achieve this with existing data.

Sweat your existing customer data to avoid sending out mass, irrelevant promotions. Target vegans, families, or even offer dine-in incentives at certain times to boost sales without eating into margins.

Harnessing performance marketing agility

Data expert, Searle confirmed: “Blanket promotions increase covers in the short-term but are an unsustainable and damaging way of increasing sales overall.

“By using your data to segment customers by behaviour, promotions can become an intelligent lever to pull, which positively impacts sales performance in the most controlled and nuanced way.”

Don’t forget that using initiatives that can give guests “reasons to be recognised” also means making many more data points available to drive actions that can foster greater loyalty from its analysis.

Eagle Eye is expert at enabling our F&B clients to achieve these kinds of goals, where discounts drive incremental and not substitutional growth. We help operators target their most valuable guests.

Our best-in-class transactional platform can help plan, execute and track promotional marketing tools, including discounts, that boost both sales and frequency without eroding the bottom line.

Contact us here to find out how Eagle Eye can help your hospitality business make the most of the post-lockdown recovery.