Are Discounts A Good Idea or a Bad Idea?

The other night, I went out to dinner with my wife Sam to a Thai restaurant in our neighborhood here in San Francisco.

This was our second time eating at this restaurant– the first time was about 6 months ago.

At the end of the meal, they gave us these 3 coupons, for a total of $11 off our next meal.

Is this a good idea – or a bad idea?

The Dangers of Discounting

Relying on discounts can be very dangerous. Long before Groupon, people have been warning about the dangers of price-based offers.

Just last night, I was reading David Ogilvy’s Confessions of an Advertising Man, originally published in 1963. In it, Ogilvy warns of the dangers of advertising price-based deals.

He writes, “A cut-price offer can induce people to try a brand, but they return to their habitual brands as if nothing had happened.”

Ogilvy continues, “Price-off deals are a drug. Ask a drug-addicted brand manager what happened to his share of the market after the delirium of the deal subsided. He will change the subject. Ask him if the deal increased his profit. Again he will change the subject.”

New vs Repeat Customers

I think there’s a BIG difference between giving discounts or coupons to new customers vs. repeat customers.

When you use discounts to attract new customers, you risk attracting people who are only there because of the deal, and have no intention of ever purchasing from you again.

My friend Noah was telling me the other day about a reality show about clipping coupons… where people collect coupons to buy stuff they don’t really even want – just for the thrill of the discount! Those are exactly the kinds of new customers you want to AVOID!

The Best Way to Use Discounts

I believe the best way to use discounts is to spur repeat purchases from regular (full-price) customers. And so, I think this Thai restaurant is using a very smart discounting strategy.

To summarize: My advice is to attract first-time customers at full price, but then use discounts to encourage them to return and buy from you sooner and more frequently.