Small Businesses are Wasting Money By Copying Their Neighbors

Nitsan:  That’s very interesting. Are there any do it yourself solutions that your prospects will try instead of taking a more professional approach?

Bob Salvas: Yes, you may have seen some coffee shops offering you a little piece of paper that looks like a business card and they punch it out as you have each cup of coffee and when you fill up the card then you get a coffee for free. It is definitely a do it yourself model, but it lacks a couple of really strong things that can help with loyalty and retention. I have already touched on this a little–if you give someone a reward outside of your business, that is going to be more coveted than inside your business, and when you hand someone that little card that is to be punched you still don’t know what their name is or any contact information- which is important because later on you may want to reach out to that customer.

Nitsan:  You have these clear understandings on what to do or what not to do. Now I would like now ask you questions about how we see in the big world that this is actually the way things work.

Bob Salvas:   What is happening today is disturbing. Many businesses are desperate and they often migrate towards what they see other businesses doing or what they hear is popular. But the problem is it is not always the right thing to do- often it is “the blind leading the blind.”

Nitsan:  Can you give an example?

Bob Salvas: Absolutely. One of the most popular things today is the deep discount- a business offering a coupon that wipes out all their profit. I believe this to be a flawed model. So if I own a restaurant and I am willing to put out this deep discount coupon, then I offer prospective customers a gift certificate/coupon to my restaurant that is valued at $100 but it only cost them $50. Now in order to do that, I have to pay the coupon company a fee for setting that up which is usually half of the money I get from the consumer. So instead of my restaurant taking in the usual $100 for the food and beverage served, we are actually only taking in $25.

So I am at a 75% loss from my regular price which is enough to barely cover the cost the goods, if that. I am literally at no profit. Here is the business proposition that the deep discount vendors propose: They say to you, hey listen do this offer, this a great discount and numerous people will come in and then they will come back and pay full price later on. The fact is that very few if any of those people are coming back to pay full price. People who are signing up for the deep discount coupons are actually going to wherever the deep discount is next week and the week after and the week after that. They are cherry pickers. They are hunting for the discount, they are discount hunters and that’s what they do, so the person that comes and cashes in the discount coupon is really not the most likely candidate to be long-term customer.

To make matters worse, these discount hunters sometimes do not leave the right tip for your wait staff because they might base it on the amount they paid instead of the total value of the meal. What does that do? That makes your servers angry, so your  servers get attitude and now  that attitude shows  when they are waiting on your existing customers  and now your customers are feeling the frustration of the servers, which affects the overall customer experience. This especially happens when others try to present the same deep discount coupon so now the servers don’t give those customers good service and those customers sometimes write bad reviews online about it.   Bad becomes worse.

So let me tell you why businesses are doing it:

1. They see everybody else doing it.       

2. They are actually hurting.

Recently here in Rhode Island we had two businesses that were well established, well-known restaurants here in this state owned by the same owner, the Blue Grotto in Providence  and the Vintage Restaurant  in Woonsocket. Both of them closed within a week of each other. I believe they filed bankruptcy and leading up to those closings they were offering a lot of deep discount coupons. They didn’t say the coupons specifically caused the closures but the media did report that it was related to financial troubles at both institutions.

Prior to closings, they had deep discount coupons for months and months. Essentially every time a coupon is offered the restaurant gets a little bit of money and that gives them cash on hand, so they keep the business open while making zero profit. But that eventually that catches up with you. Businesses are in business to make money and that is the bottom line. If you cannot succeed at doing that, giving away all your stuff at no profit margin is not going to turn things around.

Nitsan:  So tell me how have you brought an innovation to this problem?

Bob Salvas: I actually disagree with some of my fellow marketing consultants in that I do not recommend big advertising expenses or huge discounts as a lure to get people in the door. If you are Nike or Coke, you probably should spend money on mass advertising and you probably have the deep pockets to do so. But there are simply too many advertising channels today and the small business person simply does not have the resources to make it work. And in the same vein, small businesses also cannot afford to give away all their profits for no real long-term benefit. What I recommend for small business marketing is a combination of three things. I sometimes refer to it as POW!: 1-a strong Presence online (including social media, review sites and your own website), 2- direct One-to-one communication with customers and prospects, and 3-a strong retention program that rewards and retains customers while also spreading positive Word of mouth to future customers. The way I see it, it all comes back to your existing customers as an absolute critical piece to your long-term business success. Everything else is window dressing.

Nitsan Gaibel

Author of 12 innovative books that market executives and professionals, Nitsan Gaibel is a business writer and speaker. He also partners with executives to turn around under-performing teams in corporations.