Has the time for pizza coupons expired?

Oct. 24, 2007
They're stuck on pizza boxes, hung on residential doors and sent to e-mail inboxes. The coupon, a mainstay marketing technique for decades, entices customers to independent pizzerias and large chains alike. But how effective are they at maintaining a healthy business?
Some industry experts say coupons can harm a pizzeria, tarnish its reputation and lead to dangerously low profit margins. Others contend that the coupon is a tool to increase traffic, opening the door to add-ons and repeat business.
Operators who offer discounts risk sacrificing the consumer perception of a brand, said Linda Duke, CEO and principal of Duke Marketing.
"Once you discount your menu items, consumers don't think the menu items are worth regular price, and thus will only frequent a restaurant when they have a coupon," she said. "It creates a vicious cycle, and ultimately harms the brand and devalues the menu items, which were probably priced correctly to begin with." 
Profits could suffer as well, said Kamron Karington, a marketing consultant and former pizzeria operator. For example, a pizzeria running on 20-percent profit essentially could do itself in by offering deep discounts.
"If you take a $15 pizza and knock $3 off — bam, that's gone," he said. "You're now operating at break-even and can easily start operating at a loss."
But offering coupons does work well for some. Domino's Pizza distributes them because print is still an effective way to inform customers of new products and appeal to their desire for deals, said Tim McIntyre, vice president of communications for Domino's.
"To U.S. consumers, 'coupon' means 'deal' and there are many people out there who are looking for what they consider to be the best offer they can get," he said. "Sometimes that means price only; sometimes that means product quality, service and price."
But the company doesn't let the deal close there.
"Once people call to order based on a coupon, there's an opportunity to promote additional items on the menu — beverages, side items, additional pizzas," McIntyre said.
Though the company still operates with the form of coupons, the function has been taken over by the POS system. When customers order by phone or online, they select the promotion they would like from those that are available.
"We put coupon codes into our POS systems, eliminating the need to actually collect the coupon at the door," McIntyre said. "That also helps because the information in the computer is always up-to-date and we know whether an offer is still valid or not."
The real deal
Coupons are widely known to be effective motivators. In fact, Karington said, one-third of pizza buyers make their selection based on availability of a deal, typically a coupon.
However, problems can arise as the discount becomes deeper.
While 61 cents is the average discount in a grocery store, Karington said, it's not uncommon for pizzeria operators to reduce a $15 pizza to $9.99, in hopes that it will get the phones ringing. 
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"Your phones start ringing with the wrong kind of people," he said. "When all you do is cultivate the staunchest bargain-hunters, then you're vulnerable to a competitor who can go a dollar less than you, or who manages to buy their food cheaper than you."
Because of this, instead of slashing prices, operators should promote products simply by giving them away, Duke said. Grand openings and seasonal promotions are well-suited to this strategy.
"If you want people to try a new menu item, give it to them — a free offer — then they get it in their mouths," she said, "and hopefully you initiate new trial and then purchase behavior at the regular price."
Effective coupons are creative and rely on value, rather than reduced price, Duke said. She suggests highlighting specialty menu items; aspects that distinguish a brand from the rest; offering specials, such as Pepperoni Night or a free pitcher of soda during happy hour; and community support.
"The more the pizza operator can show value instead of compete on price with some of the big chains, the better," she said.
At his pizzeria, Karington once conducted an experiment, offering a $12.99 pizza at three different rates: $10.99, $11.99 and $12.99.
The result: He found no variance in response rates, even at the regular price.
"With no discount at all, people would come in with that $12.99 coupon and buy a $12.99 pizza," he said.
While coupons still have their place as far as a marketing perspective, Karington cautioned operators to pay careful attention to how much they discount.
"Use coupons," he said. "Just don't dig into your own pocket too deep to do it."

Topics: Financial Management , Marketing , Operations Management , POS

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