Walking through St Albans market place at lunch time today I passed Subway. I laughed to myself that their lunch offer “9 subs and a drink for £3” could be mis-read… they of course meant a choice of 9 subs and a drink. I looked in the window and suddenly the most ridiculous promotional pricing hit me…. I wanted to share this so that you don’t make the same error.
Subway’s Promotional Genius: Request a free drink and get a discount on your lunch as well!
Subway offer a non-time-limited lunch deal, a 6″ sub (choice of 9 flavours) and a drink for £3. The subs included are typically £2.79 or £3.49…. can you see some illogic here? Whether I want a drink or not, if I want a £3.49 sub I order the lunch deal, I get a free drink (cost to serve, supply cup, cost of ingredients – must approach at least 15p-20p) AND I get a 49p discount on my food… Insane. This promotion essentially COSTS Subway up to 69p per customer. It’s madness. It must just cover service costs on the lower priced sub. What’s the point?!
Use an EFFECTIVE price ladder to encourage profitable trade-up…
The issue with this pricing is that it doesn’t make sense! It makes customers think “what’s the catch?” If the single item price is greater than the bundle deal then there is NO chance of a trade up. It seems obvious, but clearly needs saying, the bundle deal should be priced to be more attractive than the SUM of the items but never cheaper than the single item…
Essentially it seems that Subway have not developed a sensible price ladder… I’ve explained what that is on a blog sometime ago, if you’re not familiar then refer back to “Why your retail business needs a price ladder…” If they DID have an effective price ladder the lunch deal might be £3.79 for instance – only 30p extra on the higher priced sub for the drink and £1.00 extra on the lower priced sub… so long as the drink price was over £1.00 on the standard menu then at the very least they should make 10p margin, and possibly more, and yet the trade up is sufficiently attractive (especially on the higher priced sub) to encourage more people up the price ladder.
Don’t be busy fools – make sure your pricing and promotions STILL add value to you business!
The problem with the offer at Subway is that it would appear to be less profitable than it could be. Fine on time-limited deals, when some sales, even low margin sales, are better than none… Madness on unrestricted deals. When designing promotions you need to consider the impact they will have on sales of other items in your range (see blog on “The benefit of understanding price elasticity…”) as well as the impact on your cost to serve, your positioning, your credibility in the eyes of the customer (my immediate response to the Subway deal was to laugh at it…) and on your profitability.
Selling in volume and making little margin creates busy fools of us all. There is no sense in creating promotions that end up in more work for less money. If you take one tip away from this blog it’s ALWAYS ensure that your promotions add value, don’t give away so much as to end up working harder for less.