Many business owners we speak with separate their costs to run some of their advertising campaigns from discount their product. But when you think about it, a discount is simply a cost of bringing a customer into your business, just like an ad.
If you ran an ad for $300 that resulted in 20 customers, your cost per customer is $15. This is effectively a discount of $15 off what they spend at your restaurant but with one exception. The ad company is seeing the benefit, not the end customer.
If the customer were to receive the benefit, the resulting goodwill has a better chance of translating into repeat business, and sharing. Have you ever had a consumer come into your business and say ‘Great ad in <place publication name here>. I would take that over a discount any day of the week”?
Is the ad cost, the same as a discount? Yes, of course. A cost is a cost. As an example, assume that an advertisement costs $300 per month, and that the ad does not include a discount. Although there is no guarantee of the ad bringing in customer, assume that you expect 20 customers from the ad. Your cost per customer is $300/20 = $15. If your average customer spends $25, then you make $10 per customer or $200 total.
If we told you that you could get the same 20 customers for $100, would you offer them a $10 off coupon? The answer should be ‘Heck, yes’ because your costs and margins are exactly the same as the ad. Assuming the same spend less the $10 discount, your cost per customer is $5+$10=$15. You make the same $200, but there is one big difference. Ten dollars of the cost directly resulted in a perceived benefit to the customer because they saved 40%. In addition, these customers are more likely to return and share with their friends
If the printed ad included a discount, then you are even worse off because you need to include the discount plus the number of redemptions to your ad cost. The following graphic explains the examples in more detail.
The left-hand column of both Print and Digital/Mobile represent an ad with no posted discount. The right column assumes a $10 coupon.
Digital/Mobile platforms will always deliver a higher return-on-investment than non-Digital platforms if redemption expectations are equal. If the business applies some or all the savings as a discount to consumers (Green cells), ROI remains the same as Print but the benefits to customers will result in repeat visits. Profit will remain unchanged, worst case.
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