Editorial Note: I don’t talk normally talk about pricing and coupon strategy on this blog. But I’m going to bend the rules. I’m not in the restaurant business and the story is too good

A Discount Coupon Finds A Customer

We have a little tradition in our household – we go out to dinner on every Sunday night as a family, regardless of whatever else is going on. My wife and I started this in our younger years. There was a good chance of weeknight plans being disrupted by drama. And we always go to the same place – an upscale Mexican restaurant in Alpharetta…

The story starts at the Windward Kroger, where my son saw a $7 off coupon. Having learned recently about coupons and saving money, he points it out to Mom. She promises to use it that Sunday. We chuckle and have a “good parent” moment. The lessons we are teaching him seem to be sticking.

Perceptive business readers will recognize that we are not the intended audience of this discount. This was a generic discount ($X off an entree) that was not linked to a high margin item (drink, dessert). The goal here isn’t to upsell us. Since we’re regular customers, the discount is unlikely to prompt an incremental visit or purchase. However, we now have a coupon which they need to handle. And we are very regular customers – we visit 30 times a year. Let’s see how management handles this. Our story continues.

Coupon Redemption Gone Wrong

Sunday evening, we go to the restaurant and sit down with our usual waiter. We eat our meal and present the coupon. Our waiter accepts it and tells us the manager will need to authorize it, since the coupon was for another location. We don’t expect a problem because we are regular customers. This place has only two locations (about 5 miles apart) that are still under common ownership, so it shouldn’t be complicated. Right?

The manager comes running over and makes a big deal about it. “I can only authorize this coupon for $5, not the $7, since it’s for the other location”. Seriously? The average check in this place for a family our size is $40 – $60. We pretty much dropping almost every week. And you’re hassling us about $2? But we smiled politely and accepted it. No sense in ruining our evening over $2.

New Movie: Honey, I shrunk the Customer LTV!

But this little episode was not without cost. We love the restaurant and have a great relationship with our usual server, so we do still go there regularly, but…

• The manager did a nice job of chewing up our good will towards the restaurant. Was protecting $2 worth aggravating someone who visits thirty times a year?
• Plus you managed to annoy Mrs. MarginHound. She started doing her weekly grocery shopping at the Kroger next to you. Where she can get your $5 coupon. Every Week. And Use It. Every Week. This isn’t about the money anymore. It’s a point of honor.

I did mention that we eat there thirty times a year, right? So that little coupon dispute just cost you guys:

$5 x 30 = -($150 discounts) + $2 saved = – ($148) of margin

Assuming we stick around….

The moral of this story? And it’s not just for retailers….

First, design your coupon program so that the economics of the offer can sustain the deal regardless of who redeems the coupon. Customers don’t care about your details. From a practical perspective, if you must enforce the terms of the offer on a customer, you have probably already lost.

But if you MUST enforce the terms of the offer, be judicious! Be careful when handling minor pricing disputes with long term customers. These relationships can yield amazing amounts of business. It is very silly to risk this for $2.

Oh…and don’t annoy Mom. SHE NEVER FORGETS….

Update [October 11th]: I suspect the restaurant’s loss will exceed $150 on this one; our favorite server decided to move on to a new job. That weaked customer relationship is catching up with management…we’ve started eating elsewhere…