Free is an enticing word—especially in today’s economic climate. But according to Rafi Mohammed, author of The Art of Pricing, it might be the wrong one to use when it comes to designing a promotion.
Take recent examples of promotions-gone-awry: In February, Quiznos offered free subs to the first one million customers who visited their Web site and downloaded a coupon. Within three days of the promotion’s launch, all of the coupons had been downloaded.
“The promotion was designed to invite new and faithful customers into our stores and provide them with a great guest experience,” Quiznos said in a prepared statement to QSR. But customers found many franchisees unwilling to accept their coupons and blogged about it—not exactly the response Quiznos had anticipated.
More recently, KFC teamed up with The Oprah Winfrey Show to promote its new Kentucky Grilled Chicken. Customers who visited the show’s Web site and downloaded a coupon for a free grilled chicken dinner flooded stores, and KFC couldn’t accommodate the heavy traffic.
“We expected a high redemption for the free meals based on previous promotions done by Oprah, but we did not anticipate the actual demand,” KFC spokesperson Laurie Schalow said in an e-mail.
About 10.5 million people downloaded the free coupon, and more than 4.5 million free meals were given away during the first two days of the promotion. The result: long lines that irked customers and restaurants that ran out of chicken, annoying them even more. KFC had to offer rain checks to millions who were denied their free meals the first time around.
In both cases, pricing guru Mohammed points to the nonexistent price tag as the problem.
“Especially in these times, “free” is a very powerful word,” Mohammed says. Free offers can give you good publicity, but only in certain circumstances, he warns.
“Free is a great promotion, but limit it to a day,” he says. “The problem with free is when you extend it over time. … You have a lot of customers coming to your place just because it’s free.”
Over participation in free promotions not only loses restaurants money; it also creates a negative in-store experience for customers who might have otherwise returned. Mohammed points to Denny’s offer to give customers a free Grand Slam breakfast the Tuesday after the Super Bowl—one day only—as an effective way to limit the potential pandemonium.
KFC agrees that it would “stagger the redemption the best you can so the restaurants can handle the demand and customers have a great experience.”
But to get new customers in stores—and keep them there—Mohammed suggests a different strategy:
“You have to make the discount big enough to inspire trial,” he says. “The common thing that catches people’s eyes and gets people interested, I’ve found the threshold is 50 percent.” The customers who redeem a 50 percent off coupon are much more likely to return to the store when the price is back to normal than those who come for a free offer, Mohammed says.
Plus, emphasizing product differentiation is key for national chains.
“Advertising price is important, but it’s also important to articulate how your product differs from others,” Mohammed says.
And local restaurants with less competition should avoid getting swept up in pricing wars altogether.
“When there’s not a lot of competition, you don’t have to match a rock-bottom price,” Mohammed says.
But despite the unexpected complications, neither Quiznos nor KFC considers their promotions a failure.
“The Million Sub Giveaway promotion has long-term material benefit to the sales and profitability of our franchise owners by introducing new and faithful customers to Quiznos’ new value offering and by keeping Quiznos top-of-mind among consumers,” Quiznos said in a prepared statement to QSR.