Ten Per Cent: The role of discounts

Money off, money off!

The question is, is price the most important thing? To read all the gripes and anecdotes, you would think that it is. There is no doubting the fact that the holidaymaker is a whole load more price-sensitive than may have once been the case, but is price the most important thing?

There are certain alleged truisms from the management/business world that not everyone is inclined to believe. One is that workers are not motivated by money; another is that businesses should never "sell" on price. Depending on your point of view, you will think these to indeed be true or bollocks. The real answers are, as always, far from black and white.

Which leads us to money off. To discounts.

Via Facebook, one of the local tourist office people asked me if I had thought about discount coupons in HOT!, and then went on to mention the bag of popcorn that's doing the rounds, together with some cards for discounts at some restaurants. The answer to the question was, well, no. If a business wants to offer a discount, it's up to them. The wider question is how effective is the discount approach?

On the face of it, you would think it was a no-brainer. 10% off, in flood the tourists. But it's not as simple as that. If, for example, you get a whole load of places in an area making the same or similar offers, then where's the difference? A business feels almost compelled to match the offer, even reluctantly. If the result is a load of repeat business, then ok, but that's really the issue. It may be attractive to the holidaymaker, but how good is it for the business?

The argument against discounting is that it elevates price to the top of the marketing mix tree. Price becomes the selling point, and this runs counter to pretty much all marketing theory. But what you are unlikely to find in all that theory is any study of discounts in a temporary market - which is what a tourism market is. Unless you take into account those visitors who return year on year. You don't build a business, long term, on discounts. You may do so through price, as part of the overall package, but this assumes that the prices are right in the first place. A customer doesn't become loyal on the basis of a discount; he is loyal only to the discount, not to the bar or restaurant.

A Mallorcan restaurant owner was umming and ahh-ing about a discount. In the end, he decided against because he was worried that other Mallorcans would come in and take advantage - never underestimate the Mallorcan desire to pay as little as possible. Even without some local free-ish-loading, the point is that he would stand to lose 10% that he might have got anyway. Which does also assume his package is right - in terms of the food, service and the price.

I'm not convinced about the discount as an incentive, partly because the tourism market is too diverse to be sure. At the low end, a restaurant with relatively high prices is unlikely to attract business even with a discount. At the high end, why would you offer a discount? At the low end, a place with lowish prices might get additional trade and experience an erosion in margin, with no guarantee that the customer would spend more than they might otherwise have done, or will come back, especially if the place next door is doing likewise.

It's an interesting subject though, and one - where the temporary market is concerned - that is deserving of investigation. Sounds like something else I'm going have to do. But if anyone has any thoughts on the effectiveness, or otherwise, of discounting in tourist resorts, it would be good to hear from you.


Any comments to andrew@thealcudiaguide.com please.