RestaurantIQ: The Power of the Spin Pt. II

The Power of the Spin (Part II) – maintaining a strong brand

The Spin. It’s 15 seconds of excitement for Spotluckers, yet a valuable feature that protects the brand of Spotluck merchants. In Power of the Spin Part I, we explained how our spin makes bigger discounts exclusive, thereby bringing in fresh faces and helping profits remain within our restaurants. Today, we explain how our spin helps merchants maintain a strong brand while still offering a universal loyalty program.

Have you ever seen that offer for a $25 voucher for only $10? A 60% discount! A simple demand curve should show demand skyrocketing when price is slashed. But not here. Instead, consumers “discount the discount.” They wonder what’s wrong with the fish tacos. Or perhaps they assume regular prices are way too high. Or the service stinks and the discount is meant to silence the angry diners. In any case, the real victim of such a steep discount is the restaurant’s brand.   

 
 50% off everyday?! What's up with that sushi?
 

The underlying flaw with standing offers (e.g. a directory-style "deal" site) is that discounts float around for ANYONE to grab at ANY time. And the higher the discount, the more questions arise about the quality of the restaurant.

So how does a restaurant offer a discount without compromising its brand? MAKE IT EXCLUSIVE AND RANDOM! By limiting offers to a select audience, questions about the restaurant’s quality/brand disappear. There's no underlying flaw that requires an incentive to bring in EVERY diner – the restaurant's prefers offering it to a select few. Rather than questioning the cleanliness of the kitchen, the diner is instead encouraged to act NOW. They’ve won an exclusive incentive that expires soon. The trick is devising a mechanism to offer such an exclusive incentive…

Enter the spin. The Spotluck spin, whereby Spotluckers gain a bonus discount to one randomly-selected restaurant each day, limits larger discounts to a handful of lucky diners who have “won” that day. The only discounts floating for ANYONE to grab at ANY time are baseline loyalty incentives (~10% off), while the bigger discounts vary for each spinner. Merchants are able to offer a nominal standing incentive to any loyal supporter of the local restaurant alliance, but also have the power to make enticing offers without looking desperate.  As a result, everyone’s brand remains strong and attractive.

 

Spotluck is a merchant-centric mobile platform that provides an easy way for restaurants to show off their wares and drive traffic when they need it most. We’re blazing a new trail by applying time-tested economic theories to the local restaurant space. Our Restaurant IQ series takes a deeper dive…

 

 

 

 

 

RestaurantIQ: Yield Management in the Restaurant Industry

UBER surges their ride prices on busy nights. Booking a red-eye flight can save you a ton. Hotel Tonight and Hotwire offer steals on last minute rooms.

This is yield management, a concept pioneered in the 1980’s by the airline industry. More recently, innovative companies have adopted the fundamentals of yield management (YM) to maximize revenue and profits. In short, they fluctuate prices in anticipation of consumer demand - charging more to consumers who are willing to pay more, and charging less to price-sensitive consumers. Amazon, the mammoth online retailer, changes prices over 2.5 million times a day (Business Insider, 2014). Other great companies such as The Priceline Group, Uber, and Hotels.com, use predictive algorithms to analyze consumer demand and set smart prices to appeal to the most possible consumers.

So why should the $140B U.S independent restaurant industry be any different? An empty restaurant table is just like an empty airline seat, an empty hotel room, or an empty cab seat. Each is perishable inventory - the longer they sit empty, the more revenue is lost. And filling them does not require much relative incremental expense.  

Restaurants already reduce prices and use incentives to attract diners during off-peak times. Such as happy hours during early evening and specials on off-peak nights. Mondays have become burger night, Tuesdays are taco night, and Wednesdays are 1/2-price wine night. But the challenge is creating the real “pull” needed to inspire a guest - i.e. a well-communicated and intelligently-calculated incentive. 

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So, how can a restaurant calculate intelligent prices, communicate price changes and fill empty seats? A yield management platform focused on restaurants! The time is ripe in the independent restaurant industry for a true YM platform. Why?

  • Perishable Inventory. Empty tables mean lost revenue.
  • Low Incremental Costs. Food & drink costs a restaurant about 25%, so there's wiggle room to cut the price & still make a profit.
  • Prices Matter. Competition is fierce and increasingly-savvy diners are sensitive to changes in price.
  • On-Demand Matters. Consumers make decisions fast. Mobile technology allows diners to assess prices on the move.
  • Platform Technology Exists. Price changes are best communicated en masse via a marketplace. Calculating the "right price" is best achieved via a marketplace. Marketplaces work best on platforms.

Enter Spotluck. A platform that has the attention of thousands of hungry folks every day. And a platform known for COMMUNICATING price fluctuations and specials, with software that helps to calculate the right price at the right time. When it rains and diners seek cover in their family rooms, a single local restaurant is not able to advertise an immediate special for that night. But on a platform, where a Weather Bonus Discount drives prices down for everyone, restaurants see real increases in traffic when they’d otherwise be counting flowers on the wall.

 

Spotluck is a merchant-centric mobile platform that provides an easy way for restaurants to show off their wares and drive traffic when they need it most. We’re blazing a new trail by applying time-tested economic theories to the local restaurant space. Our Restaurant IQ series takes a deeper dive… 

 
 

RestaurantIQ: The Power of the Spin

The Power of the SpiN: Avoiding Cannibalization & Maximizing profits


The spin - 15 seconds of excitement for Spotluckers, yet a core component of protecting our Spotluck merchants. Here, we explain how our spin, which may seem like a fun gimmick on its face, is crucial to maximizing restaurants’ profits.

Restaurant owners have a love-hate relationship with discounts. They unanimously agree that a restaurant advertisement must have a tangible incentive to inspire action. And they love incentives that help lure new guests who fall in love with a dish and become lifetime regulars. But they hate incentives that decimate profit margins with no long-term benefit. The holy grail of advertising is finding the right balance, where profitable incentives are maximized and wasteful incentives are minimized. 

For restaurant profitability, cannibalization occurs when diners enjoy a discount despite being ready and willing to pay full price. By offering discounts to these folks, restaurants are “eating up” their own profit margin.

So, how does a restaurant avoid cannibalization? MAKE DISCOUNTS EXCLUSIVE! Extend them to a limited audience for a limited time. This increases the chance that the discount will inspire a NEW guest to act NOW.

Consider a paper coupon. If mailed to every resident within 20 miles of a restaurant and valid for three months, who will it attract? Most likely, the couple that expects to visit your restaurant ANYWAY sometime in the next three months, who simply store it in a purse until that visit happens. This is cannibalization. But, if the paper coupon could be strategically mailed to new diners and expire in just a couple days, it would more likely inspire new folks to take immediate action. It would change consumer behavior. Such a limited-time, targeted incentive isn’t practical with paper. But on a mobile app…

 
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Or consider a 50%-off coupon floating on the internet – diners have no incentive to jump on the deal. Why would they buy it in advance when they can simply snatch the coupon moments before dining? Limiting the audience and duration of internet offers was once achieved with daily deal email blasts, but users have grown tired of this marketing tactic. Instead, they seek an on-demand service which they use only when the dining decision arises. Providing such a dynamic service on the web is tough. But on a mobile app... 

Enter the spin. The Spotluck spin, whereby Spotluckers gain a bonus discount to one randomly-selected restaurant each day, protects larger discounts by limiting them to a handful of lucky diners willing to act immediately. The greatest rewards go to flexible foodies looking for a quick decision. It changes consumer behavior by creating pull through exclusive incentives. Regulars simply enjoy a minimal courtesy incentive while new diners are enticed with juicier incentives. In summary, the spin maximizes the opportunity to introduce a restaurant to a new guest, while minimizing the risk of profit-killing cannibalization.

 

Spotluck is a merchant-centric mobile platform that provides an easy way for restaurants to show off their wares and drive traffic when they need it most. We’re blazing a new trail by applying time-tested economic theories to the local restaurant space. Our Restaurant IQ series takes a deeper dive…