Controlling the Coupon Monster

By Dave Ostrander

Do you ever feel like your competition is crushing you with their coupons? Do you run into price resistance from shoppers who only compare price? Do you ever get Do you ever feel like the urge to turn the tables and twist the knife in your biggest competitor's heart? If you can't beat them, why not one up them?

I found myself being dominated by very aggressive couponing from competitors some time back. They were everywhere; weekly shoppers guide, local newspaper, Advo-type mailers and direct mail. My competition was making me look expensive and positioning themselves as the cheapest provider of pizza in my town. I was watching market share slip away and was convinced that my loyal customers wouldn't abandon me once they tried the competition. I was only half-right.

The vast majority remained loyal, but many dumped me in favor of a less expensive pizza even though my pizzas had more toppings. I couldn't get rid of the stigma of being expensive. I couldn't get the message out. Most of my advertising didn't work. I told the world that my 16-inch large was 23 percent larger than their 14-inch, and we always used extra cheese as the norm. I was going nowhere Some operators would have let it go and settled for the business that was left over, but I couldn't bring myself to do it.

The strategy I decided on was to accept all competitors' coupons. My local competitors, in a sense, would become my printing and distribution suppliers. They would pay to have the flyers printed and mailed. This would save me over $1000 every time they decided to print. I would still print and distribute my own flyers, but only once every 4-6 weeks. The monthly bottom line savings to my advertising expenditures would be roughly $2000 a month.

Several things happened after I started accepting local competitors' coupons.

  1. My food cost in percentage went up 4%
  2. My advertising costs fell 75%
  3. Labor went down 3%
  4. My food cost in percentage went up 5%

Before I could accept competitor's coupons I had to make several adjustments in my offerings. The first thing I did was downsize my 16-inch large to a 14-inch. I had to fight them on a level battlefield. We make pizza by the square inch, but unfortunately sell it by the diameter. Some pizza operators, let alone most of their customers, have no clue how much difference there is between sizes. I expected customer anxiety and had the answer ready for them.

My crew was trained to respond like this. "Big Dave's has recently adopted the industry norm on pizza sizes. We no longer offer a 16-inch pizza. We now call a 14-inch pizza a large like all of the other places in town. We didn't mess with prices or the topping amounts; in fact we are now the most competitively priced place in town. Did I mention we now accept any of our competitor's coupons? Now you can enjoy the best pizza in town at great savings. What kind of masterpiece can I make for you this evening?"

We neutralized the possible fallout with all of the positives we mentioned in the phone and counter greeting. The next thing I had to do was really; really get a true handle on my food cost. You can't play this game if you are still free-throwing cheese and toppings on as you build your pizzas. I controlled the cheese by using pre-loaded rubber cups and installed two digital scales on my make table. By portioning out every item on every pizza we made, we were ready to rumble.

The next step was to offer a little more. We temporarily offered a free soda or a half order of bread sticks to the order to position ourselves as lowest cost, highest quality, and best value in the entire area.

At this time I was ready to tell the world. I bought three display ads in my local newspaper and placed the message on my roadside reader-board sign. That was all of the advertising it took. I was servicing all of my old, loyal customers as well as a lot of new faces that used to think I was high priced. My reputation was the best pizza in town and the most expensive.

Now the decision for the price shoppers was a no-brainer. I measured the success of the promotion with these four indicators as well as the unsolicited positive word of mouth I heard everywhere.

The only indicator that may cause you concern is the thought of food cost increasing. We've been programmed to control food cost at a fixed amount. If you go over 28-32-35% you'll go out of business. Food cost is a very important measurement tool that we use to give ourselves a monthly (weekly) report card but it is not all that it's cracked up to be.

When was the last time you deposited food cost in your checking account? When was the last time your banker congratulated you on your terrific cost of goods sold? They don't care. They only analyze cash flows, return on investment and balance sheets. It's all about money, period.

Guerilla marketers are looking for all of the business and aren't happy until they have squeezed every possible dollar out of their competitions cash registers at little or no expense to themselves.

The coupon mix that you will end up with will probably be similar to mine.

  • Half of all sales were at full price.
  • Half of those remaining were your coupons. Medium liability.
  • The remaining 25% were the down and dirty, high liability, scary, low profit offers from your worst competitor.

I'm personally not a coupon person. I clip a few, from time to time, and litter my refrigerator with them, but rarely redeem them. On the other hand, lots of people take it very seriously and refuse to pay retail for anything. I've found that the best blend of these customers is about half and half. Roughly half of your customers will never or only occasionally use a coupon. The other half will always use one. Out of that half, you'll redeem a mixture of your competitor's coupons and some of your own.

I'll assume that your competitors offer bigger discounts and appear to be a better deal and your coupons are pretty good deals, but are not the best deal based on face value. I know, you put more stuff on your pie than everyone else, but how do you convince the world of this fact? Answer: Let them try your pizza and compare it with their former pizzeria. This is the only way people will change their purchasing behaviors for the long haul.

No one ever makes a bad decision. They simply make new decisions based on new information presented to them. This truism fits every aspect of most everyone's life.

This is the break point that will determine if you win or lose the battle. If you lose your nerve and start whining about the non-profitable coupons, you'll quit too soon and they win. Look at the long term, big picture. Don't start adding up the quarters you may lose. Instead look at the extra thousand pizzas you'll be making this and every upcoming month. The money will be in their cash register or yours, you decide. Don't blink or lose your nerve at this point.

In order to keep this profitable coupon mix you must use sound judgment when offering the coupon price to any and all customers. Take the order, quote the real menu price and shut up. If the customer is holding a coupon they will let you know. At that time re-compute the price and tell them the new price.

I had a cheat sheet that I used to price offers other than mine next to the phones and at the registers. After I installed my computerized POS system, all of the competitor's coupons were displayed on a special screen. We simply took the order and touched the light pen to the screen and the computer program correctly priced the order and printed, " Must Get Coupon" on the receipt. Another rule was "No tickey - No shirtey." The customer had to produce a coupon at the time of almost every transaction. Exceptions were made if we felt that the customer was aware of the promotion and we might lose the sale and create ill will. At that time we gave them one of my coupons and let it go.

The promotion and the awareness were working. One of my pet peeves is to be standing at a check out counter and watching every one in front of me receive a discount. Put yourselves in the customer's shoes. Engage the unaware customer like this; "You're probably wondering why everyone has a coupon and you don't. Let me explain, we accept all local coupons and our regulars know that. Let me give you a flyer and show you our most popular offer. Please keep the sheet and feel free to use them in the future. We are the best, as well as lowest cost pizza in area, if not the whole state." This burns the message permanently into the mind. You now control the best of both worlds - your strengths and their weaknesses.

This tactic was so successful I ran it for years. Customers just couldn't get over how we made loaded pizzas and sold them at the same or better price than our skimpy competition. I must have explained it a thousand times. I saved all redeemed coupons in empty cans under the counter by the cash register. We tracked them and discovered which coupons were the most popular. I used a can for each of my competitors and one for my own.

After we were done collecting the data we dumped the cans every week into similar boxes and literally filled huge boxes with hundreds of thousands of dollars of our competitor's best shots. I then sent the boxes of coupons back to the respective managers, on their birthdays with a Hallmark Card (when only the very best will do), thanking them for printing for me for the year, and wishing them a happy birthday and a prosperous coming year. Whenever a competitor is financially, as well as emotionally, strained you have the advantage.

I grew weary and bored of telling the same story over and over and decided it was time to stir the pot and make an unforgettable statement that would be forever memorable. This is when I instituted the Big Dave's Ultimate Pizza Guarantee. This removed the risk from purchasing my pizza as well as every other pizza in town. The knock out punch was the implementation of the Big Dave's Worldwide Coupon Search.

Since I was accepting all local coupons and explaining the program everyday, I decided that I would make it a very simple, unforgettable statement. The new response was Big Dave's will honor any coupon, printed anywhere in the world, that can be translated to English and converted to US Dollars.

The WWCS would be run for a month. During that month we encouraged our town to scrounge the world over for any pizza coupon and present it to us during an actual purchase. We had several language conversion dictionaries and a copy of the Wall Street Journal that listed the daily currency exchange rate at the order area and phones.

After the customers brought in the coupons and actually used them we would affix the coupon on a world map in the lobby. The person that brought in the coupon that was located the furthest distance from my location would win $100.This created excitement, word of mouth and curiosity in my town. It also neutralized and paralyzed my competitors best marketing strategies. I bought one half-page ad in the newspaper announcing the contest. The ad had international flags around the border and the paper did an article on the promotion and gave us more free publicity.

The really cool things that spun off from the WWCS promotion were

  1. Customers often paid more for their pizza in order to enter the contest. I cajoled them by asking them, "Aren't you glad you live in the USA where pizza is inexpensive?"
  2. I had a great comeback to the question, "Do you still accept competitors' coupons?" Somebody else was printing 75% of my coupons for me, at no expense to me.
  3. It satisfied three out of the four criteria for outstanding promotions.
    • Unexpected
    • Outrageous
    • Invites the customer to play
    • Unadvertised

The coupons started flying in. We redeemed 85 international coupons during the campaign. The first winners were a family of regular customers. They had relatives in New Zealand who were sheep farmers. One cousin wrote her cousin in NZ and explained the contest, she sent a copy of the ad and promised her if she won the contest they would split the prize money. They presented a Pizza Hut coupon from Wellington, NZ on the last day of the contest and after we did the scientific straight string on the map computations we notified them. They came in and received their winnings and posed for a photo. They also spent half of the winnings for dinner. We published their picture in the paper with a thank you.

The following year the winning family hosted a family reunion. Their Kiwi kinfolk attended and the first place they had to eat at was.... You guessed it, Big Dave's Pizza. We held the contest every August for the next several years and it became a tradition.

I have helped implement this strategy for gutsy clients that are having difficulty getting past aggressive competitors coupons. From Cleveland to Spokane, and dozens of points in between, this strategy has been a huge success. If you are forced to play in the coupon arena, why let your competitors make the rules?


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