I was recently reminded of a conversation I had with a restaurant manager in the late '90s. He had bus-loads of diners rolling into his restaurant every day, filling his tables and ordering entrées so quickly that his chef could barely keep up... yet, he couldn't complain enough.
Problems of Perceived Value: There Is No Free Lunch
The business owner's stress stemmed back to a seemingly innocuous decision. When a local charity approached him about doing some coupons for a fundraising booklet, he came up with a seemingly sensible idea to offer steak entrées at a 2-for-1 price. He wouldn't be making any money off his steaks, but was sure he could make up the margins on extra sales of drinks, appetizers, and desserts.
While that idea worked out very well in theory, in practice it became problematic.
The reality was that people were coming in for the low-priced dinners, and the promotion had made it nearly impossible for him to sell prime cuts at anything more than hamburger prices. Steaks were flying out of the kitchen, but there wasn't any beef left in his profit margins.
His recourse was to push his wait staff harder to "upsell" diners on beverages and other side offerings. This didn't do much to raise revenues, but it did annoy guests and make his servers grumpy (which, in turn, risked the good reviews and reputations he'd built up over the years).
By making the subtle switch from "great steakhouse" to "cheap steakhouse," he was quickly and unintentionally destroying his business in the process.
The Sizzling Scent of Real Value
This was an interesting conundrum, because the problem wasn't his service, or even his prices, but the fact that he had lowered the value of what he offered to the point that diners no longer wanted to pay what it was worth. My suggestion was simple: Sell steak dinners at regular price, and provide "bonus" extras like access to a salad bar, or a free dessert, along with nonalcoholic drinks at no charge.
This was another subtle change, but one that moved in the other direction - instead of decreasing the value of the steaks, he was maintaining prices on his most important service and offering freebies on items that wouldn't hit him in the wallet nearly as hard. And, because the extras were only available with the purchase of an entrée, the wait staff no longer had to try to harangue guests into ordering (and paying) more than they wanted.
It took a couple of months to change the mindset of his diners - and he did lose some of those customers who were coming in for the cheapest steaks in town - but eventually the strategy worked, the restaurant made money again, and the business kept growing.
This isn't just a story about steaks, though; it's about the way we present our products and services to the people who buy them.
Are You Undercutting Your Own Value?
In business schools and marketing seminars, offering discounts is almost universally given as a way to jumpstart sales and create customer interest. Things sometimes work that way, but we also have to be aware that asking people to give less for what we do or provide can also take away some of its perceived value in their minds. Do that too often, and you might not ever get it back.
It's true that value might change from one customer to the next, and that there are a lot of factors to value (such as what our competitors charge or what buyers can afford to pay) that are well beyond our control. As marketers, though, we need to take the long view and think very carefully before possibly undercutting ourselves.
When it comes to perceived value as it relates to your customers, it's probably a lot easier than you think to trim the fat.
About the author: Randy Milanovic is an entrepreneur, marketer, 2x author, blogger of online marketing, SEO & social engagement topics. Stage IV Cancer Survivor. Social Media Today Best Thinker. His firm, Kayak Online Marketing was a finalist for Small Business of the Year 2013, and Randy himself was recently nominated as Entrepreneur of the Year by Ernst and Young. Chat him up in Gplus anytime.