Advertising Assignment I

Frequency of Restaurant Advertising and Promotion Strategies:

Exploring an Urban Market

Faye Hall Jackson Karl Titz

Agnes L. DeFranco

ABSTRACT. This project investigated the benefit and use of ten adver- tising and promotion strategies used by urban restaurants. A phone sur- vey was conducted of randomly selected restaurant members of an urban restaurant association. Respondents were asked to evaluate each of the strategies based on frequency of use and derived benefit. The survey achieved a 39.7 percent response rate. Overall, respondents reported lim- ited use and benefit from advertising and promotion activities. However, radio advertising, coupons, electronic/Internet media, and food samples appeared to be more frequently used and produce greater benefit when differences did exist. Franchisees, larger restaurants, and higher guest check establishments indicated greater use of and more benefit from these selected advertising and promotion strategies. [Article copies avail- able for a fee from The Haworth Document Delivery Service: 1-800-HAWORTH. E-mail address: <[email protected]> Website: <http://www.Haworth Press.com> © 2004 by The Haworth Press, Inc. All rights reserved.]

Faye Hall Jackson is Co-Director, Hospitality Industry Diversity Institute and As- sistant Professor, Conrad N. Hilton College of Hotel and Restaurant Management, University of Houston, 229 C. N. Hilton and College, Houston, TX 77204-3028 (E-mail: [email protected]).

Karl Titz is affiliated with the Conrad N. Hilton College of Hotel and Restaurant Management, University of Houston (E-mail: [email protected]).

Agnes L. DeFranco is Co-Director, Hospitality Industry Diversity Institute and As- sociate Professor, Conrad N. Hilton School of Hotel and Restaurant Management, Uni- versity of Houston (E-mail: [email protected]).

The authors express gratitude to the University of Houston Small Grant Program and Greater Houston Restaurant Association for funding.

Journal of Food Products Marketing, Vol. 10(2) 2004 http://www.haworthpress.com/web/JFPM

© 2004 by The Haworth Press, Inc. All rights reserved. Digital Object Identifier: 10.1300/J038v10n02_02 17

KEYWORDS. Advertising, promotion, marketing, coupons, Internet, restaurant

PROBLEM STATEMENT

Forty-five percent of the American food dollar is spent on food pre- pared away from home. By 2010, more than half of the American food dollar is expected to be spent on food prepared away from home (Na- tional Restaurant Association, 2000). Nationally, Texas has the highest total and per capita spending on food prepared away from home among 28 Metropolitan Statistical Areas (MSA) for which data was available (Ebbin, 2001). In Harris County, there are 5,116 foodservice locations or approximately one eating and drinking establishment for every 665 residents (Economic Census, 1997). These statistics validate a need for restaurateurs to establish competitive advantage that will ultimately re- sult in increased profitability through increased customer base reten- tion. Limited literature describing marketing strategies employed by metropolitan restaurateurs and the heightened need to identify effective marketing strategies to attract and retain a viable customer base are stimuli for this study. As is often the case, external marketing efforts are launched with little regard for proper assessment of effectiveness and marketing budgets are often represented as “whatever the owner can af- ford.” Little thought is given to matching the resources of the restaurant with the most appropriate marketing strategy for the targeted customer. As broadcast advertising is often cost prohibitive for small to medium size facilities, alternative-marketing techniques must be employed.

Television, radio, billboards, directories, fliers, coupons, gift certifi- cates, telemarketing, electronic media, and limited promotions are all mar- keting strategies used by restaurant operators to attract and retain a loyal customer base. The dominant advertising media for large facilities is televi- sion while smaller restaurants take advantage of low-cost community based fliers as a strong source of advertising (Cebrynski, 2000, 1998; Nykiel, 1997). Internally, table tents, window displays, back-of-the-house reminders, and limited promotions are advertising and promotion strategies common to all facilities.

Strategies to increase customer patronage can vary according to years of operation, and vary according to size of facility. The goal, how- ever, of all marketing strategies is ultimately to consistently increase revenues by an acceptable level while increasing or maintaining a loyal

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customer base. Today’s marketing strategies must be competitive, fo- cused, and consistent.

This study had two broad goals. First this study explores the advertis- ing and promotion strategies used by urban restaurateurs. Second, this study evaluates the perceived benefit of each strategy by management. This project serves as a foundation upon which future investigations into the use and value of restaurant advertising and promotion programs can be built.

The objectives for this project are:

1. Identify differences in marketing strategies urban restaurants use based on restaurant characteristics.

2. Identify benefits of advertising and promotion strategies realized by urban restaurants based on restaurant characteristics.

3. Compare respondent measures of marketing strategy effective- ness with measures reported in current marketing literature.

The results of this study will benefit the following groups:

1. Restaurateurs in the evaluation and planning of marketing strate- gies.

2. Educators in developing hospitality marketing course materials featuring current marketing strategies employed by urban restau- rateurs.

3. Students in hospitality programs to better understand the effec- tiveness of various internal and external marketing strategies.

LITERATURE REVIEW

Restaurants rely on advertising and promotion strategies to generate more business. The most common strategies are collateral material, coupons/price discount, direct mail, Internet, frequent diner programs, menu promotions and specialty product merchandising (Lubetkin, 1999; Siguaw & Enz, 1999; Makens & Bowen, 1996). Although each strategy on its own has benefits, the collective purpose of advertising and promotion is to provide communication about a product or service resulting in sustained increased revenue (Siguaw & Enz, 1999).

Collateral material examples such as brochures, fliers, menu inserts, and press kits often consume nearly 50 percent of food and beverage ad- vertising budgets (Burnish, 1999). For younger establishments in busi-

Jackson, Titz, and DeFranco 19

ness less than five years, primary advertising and promotion expenditures are on fliers, menus, and frequent diner promotional material. For more established businesses, collateral costs are in brochures, press kits, and specialty merchandise (Jones, 1997).

Price discount promotions are used by both younger and more estab- lished businesses as a means to gather demographic patronage informa- tion. Common forms of price discounts used by younger businesses are coupons and buy-one-get-one-free promotions. Both are a valuable means to attract local customers and help build market share (Wiegand, 1999; Wilbourn, McCleary & Phadeesuparti, 1997; Andereck, 1988). Price discount promotions used by more established businesses include frequent diner programs and bundling/value meal pricing (Schwartz & Cohen, 1999). These promotions are designed to thank customers for their business and maintain market share in a competitive environment (Waters, 2000; Tepeci, 1999).

Like coupons, direct mail is a promotional strategy used to help es- tablish customer loyalty and generate revenue (Burnish, 1999). Benefits of direct mail relate to focused target marketing and micro-marketing. This is due in large part to technological advancements in the areas of database marketing and Internet marketing.

METHODOLOGY

A telephone survey instrument was developed based on advertising and promotion literature. Demographic variables used as descriptors in this study related to restaurant operations and consumption habits of guest. Specific demographic variables were:

1. Style of service. 2. Business format. 3. Number of seats. 4. Restaurant longevity. 5. Average per person guest check. 6. Percent of repeat customers.

Regarding advertising and promotions, respondents were also asked to evaluate ten variables based on frequency of use and benefit derived. Likened to the demographic variables, the advertising and promotion strategies are grounded in the literature. These variables were:

20 JOURNAL OF FOOD PRODUCTS MARKETING

1. Radio Advertising. 2. Newspaper Advertising. 3. Directory Advertising. 4. Electronic/Internet Resources. 5. Direct Mail. 6. Food Samples. 7. Coupons. 8. Advertising Specialties. 9. Frequent Diner Programs.

10. . Food and Beverage Displays.

The research instrument was deemed to have content and construct validity by faculty and practitioner experts in the field of marketing and advertising. The survey contained appropriate theoretical ideas and theories commonly used in the discussion and description of restaurant advertising and promo- tion. Subsequent to expert review the survey was pilot tested with 20 res- taurateurs to insure instrument clarity. Based on this pilot test, revisions were made. Data were analyzed using the Statistical Package for the Social Sciences version 11. Frequencies for each of the demographic and adver- tising and promotion variables were examined and reported. A series of post-hoc one-way ANOVA were performed. The significance level was set at p = .001. However, because of the exploratory nature of the study, up to p = .05 was reported to benefit future research.

Subjects selected for this study were restaurant members of an urban Texas restaurant association. All of the participants conducted business in the na- tion’s 4th largest Metropolitan Statistical Area. Participants were randomly drawn from the 500 restaurant members of the local association. From the ur- ban restaurant population of 500 members, 224 potential participants received an invitation to participate in a phone survey. Interviewers participated in a training session to explain the study’s purpose and scope and to rehearse the phone script. Interviews were completed over a two-week period.

RESULTS

An invitation to participate in the phone survey was made to 224 urban restaurants. Eighty-nine phone surveys were completed for a response rate of 39.7 percent. Full service restaurants accounted for 65.6 percent of the re- spondents and Quick Service accounted for 20 percent. Independent restau- rants accounted for 84.4 percent of the respondents and franchise restaurants accounted for 10 percent. Restaurants with seating capacity between 51 and

Jackson, Titz, and DeFranco 21

150 seats accounted for 47.8 percent of the respondents. However, 18.3 per- ent of the restaurants reported seating capacity greater than 250 seats (see Table 1). Remarkably, 71.8 percent of the respondents were in business lon- ger than 6 years. Of those, 38.8 percent had been in business 16 years or more (see Table 2). The majority of respondents reported an average check between $5.01 and $15.00. Notably, 25.6 percent of the respondents had guest checks larger than $20.00 and over half of those reported checks greater than $30.00 (see Table 3). Over 65 percent of the respondents re- ported their repeat customers made up over 71 percent of their business (see Table 4).

As a group, respondents made limited use of advertising or promotions as part of their marketing effort. The most frequently reported advertising and promotional medium was the Internet and electronic resources. Direc- tory advertising and food samples were also more frequently used by these respondents. The least frequently used was radio advertising (see Table 5).

As a group, respondents reported the Internet and electronic re- sources, food and beverage displays, and directory advertising were

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TABLE 1. Number of Seats

Frequency Valid Percent

0-50 8 9.2

51-100 24 27.6

101-150 19 21.8

151-200 13 14.9

201-250 7 8.0

250-300 11 12.6

301 or more 5 5.7

Total 87 100.0

TABLE 2. The Amount of Time the Restaurant Had Been in Business

Frequency Valid Percent

1-3 years 16 18.8

4-5 8 9.4

6-10 18 21.2

11-15 10 11.8

16-25 20 23.5

26 or more 13 15.3

Total 85 100.0

Jackson, Titz, and DeFranco 23

TABLE 3. Average Per Person Guest Check

Frequency Valid Percent

$ 0.00-5.00 3 3.5

$ 5.01-10.00 26 30.2

$10.01-15.00 23 26.7

$15.01-20.00 12 14.0

$20.01-30.00 11 12.8

$30.00 or more 11 12.8

Total 86 100.0

TABLE 4. Percent of Repeat Customers

Frequency Valid Percent

0-50% 13 15.9

51-70% 15 18.3

71-85% 35 42.7

86-100% 19 23.2

Total 82 100.0

TABLE 5. Usage of Advertising and Promotional Media

n Mean Median Mode

Radio Advertising 88 1.49 1 1

Newspaper Advertising 88 2.09 1 1

Directory Advertising 86 2.23 2 1

Electronic/Internet Resources 85 2.47 2 1

Direct Mail 84 1.9 1 1

Food Samples 88 2.01 2 1

Coupons 88 2.18 1 1

Advertising Specialties 85 2.09 1 1

Frequent Diner Programs 85 1.72 1 1

Food and Beverage Displays 76 1.79 1 1

1-Never 2-Rarely 3-Occasionally 4-Frequently 5-Very Frequently

“somewhat beneficial” to increasing sales. However, most respondents reported that none of the marketing media were beneficial (see Table 6).

Subsequent to the initial data review a series of post hoc one-way ANOVA were performed. To account for the post hoc and repetitive na- ture of the tests, the significance level was set at p = .001. However, re- sults for all tests p = .05 are reported here. Because of the exploratory nature of the study, the weaker relationships were reported to allow re- searcher insight to future inquiry.

Franchise operations used radio advertising more than independent res- taurants. While 44.4% of franchise restaurants reported some use of radio ad- vertising, 78.9 percent of independent restaurants reported never using radio advertising. This difference was significant at the p = .001 level (see Table 7A). While not reaching p = .001, franchise restaurants did report that radio advertising was more beneficial than independent restaurants (see Table 7 A). Independent and franchise restaurant also differed on coupon use and benefit. Notably, 62.7 percent of independent restaurants reported no use of coupons, while 77.8 percent of franchise restaurants reported the use of cou- pon programs. When asked whether coupon programs benefited sales, 59.4 percent of independent restaurants reported no benefit compared to 100 per- cent of franchise restaurants reporting some benefit. While not significant at p = .001 the difference in perceived coupon benefit is notable (see Table 7B).

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TABLE 6. Level of Benefit in Using Advertising and Promotional Media

n Mean Median Mode

Radio Advertising 80 1.56 1 1

Newspaper Advertising 81 1.07 1 1

Directory Advertising 86 2.23 2 1

Electronic/Internet Resources 78 2.58 2 1

Direct Mail 74 2.03 1 1

Food Samples 86 2.06 1 1

Coupons 81 2.26 1 1

Advertising Specialties 82 2.12 1 1

Frequent Diner Programs 76 1.79 1 1

Food and Beverage Displays 84 2.42 1.5 1

1-Not beneficial 2-Somewhat beneficial 3-Moderately beneficial 3-Beneficial 4-Very beneficial

Restaurants with larger seating capacity, tended to use electronic/Internet media more. Electronic/Internet media was also found to be significantly more beneficial to larger operations. Both of these findings were significant at p = .001 (see Table 8).

Operations were categorized into six time frames (see Table 2). The differences in usage and benefits of food samples do not indicate straight-line differences based on longevity. However, there are marked differences between different categories at different points in a restau- rant life cycle. These findings are not significant at p = .001 but are nota- ble at p = .05 (see Table 9).

Jackson, Titz, and DeFranco 25

TABLE 7

A. Radio Advertising by Business Form (Independent vs. Franchise)

Sum of Squares

df Mean Square F Sig.

Frequency– Radio

Between Groups

13.002 2 6.501 7.784 .001

Within Groups

70.987 85 .835

Total 83.989 87

Benefit– Radio

Between Groups

8.871 2 4.436 4.226 .018

Within Groups

80.816 77 1.050

Total 89.687 79

B. Coupon Promotions by Business Form (Independent vs. Franchise)

Frequency– Coupons

Between Groups

16.538 2 8.269 3.791 .027

Within Groups

183.209 84 2.181

Total 199.747 86

Benefit– Coupons

Between Groups

26.899 2 13.449 6.220 .003

Within Groups

168.657 78 2.162

Total 195.556 80

The average guest check was classified into six categories (see Table 3). While there appear to be differences between categories in frequency of use and benefit of electronic/Internet advertising, there does not appear to be an ordered difference. These findings are notable at the p ≥ .05 but are not signifi- cant at p = .001 (see Table 10 A). Differences between coupon use based on aver- age check were also notable. Restaurants with lower check averages were more likely to use coupons, however 64 percent of restaurants with a check average be- tween $20.01-$30.00 had used some form of coupons. As with electronic/Internet advertising, there does not appear to be an ordered difference between categories of average guest check. These findings are not significant at p = .001 but are nota- ble at p ≥ .05 (see Table 10 B).

26 JOURNAL OF FOOD PRODUCTS MARKETING

TABLE 8. Electronic/Internet Advertising by Number of Seats

Sum of Squares

df Mean Square

F Sig.

Frequency– Electronic Media

Between Groups

56.556 6 9.426 4.421 .001

Within Groups

162.046 76 2.132

Total 218.602 82

Benefit– Electronic Media

Between Groups

51.252 6 8.542 4.354 .001

Within Groups

133.415 68 1.962

Total 184.667 74

TABLE 9. Food Sample Promotion by Business Longevity

Sum of Squares

df Mean Square

F Sig.

Frequency– Food Samples

Between Groups

14.536 5 2.907 2.431 .042

Within Groups

93.274 78 1.196

Total 107.810 83

Benefit– Food Samples

Between Groups

22.300 5 4.460 2.981 .016

Within Groups

113.700 76 1.496

Total 136.000 81

DISCUSSION AND CONCLUSIONS

The current study investigated the frequency of use and benefit de- rived from advertising and promotional activities in urban restaurants. As a group these respondents made infrequent use of advertising and promotion strategies and found them to be of limited value. The urban market in which this study was conducted boasts the highest tendency by consumers to eat out in the nation. Thus, the impetus for advertising and promotion may be reduced as there is a high propensity to consume food prepared away from home. Further, many restaurateurs may not feel compelled to invest in advertising or promotion strategies or may

Jackson, Titz, and DeFranco 27

TABLE 10

A. Electronic/Internet Advertising by Average Guest Check

Sum of Squares

df Mean Square

F Sig.

Frequency– Electronic Media

Between Groups

48.159 5 9.632 4.155 .002

Within Groups

178.515 77 2.318

Total 226.675 82

Benefit– Electronic Media

Between Groups

46.611 5 9.322 4.406 .002

Within Groups

145.976 69 2.116

Total 192.587 74

B. Coupons by Average Guest Check

Frequency– Coupons

Between Groups

25.881 5 5.176 2.418 .043

Within Groups

169.131 79 2.141

Total 195.012 84

Benefit– Coupons

Between Groups

28.653 5 5.731 2.578 .033

Within Groups

162.284 73 2.223

Total 190.937 78

lack adequate information to develop a results oriented program. The specific study objectives and results follow:

1. Identify differences in marketing strategies urban restaurants use based on restaurant characteristics.

2. Identify benefits of advertising and promotion strategies realized by urban restaurants based on restaurant characteristics.

3. Compare respondent measures of marketing strategy effective- ness with measures reported in current marketing literature.

As a group, the respondents reported limited use of, and little benefit from, advertising and promotion strategies. However, franchise restau- rants were more likely to use radio advertising and coupon promotion strategies than independent operators (see Table 7A and B). This may be attributable to the fact that franchisees are required to contribute to an advertising fund. The franchiser is able to leverage the individual res- taurant advertising contributions to buy radio advertising and create valuable coupon offers. If left to their own devices, the franchisees may not have purchased these services or created the promotions. The fact that franchisees reported more derived benefit than independent opera- tors should be an indicator of the value of these marketing strategies to all operators. Anecdotal responses report initial adoption of Internet sites was a response to guest expectations and perceived correlation of website design correlating with a strong business base. This is consis- tent with Ruggless (1995) who reports the financial benefit of restau- rant-based online services made available to the traditional computer owner–upper income, educated consumer.

Restaurants with greater seating capacity were significantly more likely to use and find benefit in Electronic and Internet advertising (see Table 8). Whether the derived benefit was objectively measured or an intuitive finding was not established in the current study. The fact that restaurateurs appear likely to embrace these new technologies and modes of communication is contrary to the widely held belief that res- taurateurs are slow adaptors of technology. How to maximize the prom- ised benefit of Electronic and Internet applications for restaurants remains to be examined.

Restaurants with greater longevity were more likely to use food sam- pling as a promotion strategy. Restaurants that used food samples also found greater benefit in the practice (see Table 9). Food sampling is an excellent promotion strategy in guiding customer to more popular items with higher contribution margins. Sampling can also be used to enhance

28 JOURNAL OF FOOD PRODUCTS MARKETING

incremental sales of appetizers and desserts. Some respondents reported sampling as a means to increase customer retention by providing an un- expected service on a random basis. The key to successful food sam- pling promotions rests in offering outstanding product in terms of quality, taste, and appearance.

Average guest check was a determinant in the use of Electronic and Internet advertising and coupon promotions (see Table 10 A). The higher the guest check average the more likely restaurants used the Internet and cou- pons. Restaurants with higher guest check also reported greater benefits de- rived from the Internet and coupons (see Table 10 B). This was particularly true for restaurants with a strong business clientele where the technology ex- pectation is higher and where there is a heavier concentration of eating and drinking establishments. Many restaurant Web-sites offer coupons for download. As previously noted, the Internet may have many uses in restau- rant management and marketing, many of which have not yet been uncov- ered. Although the Internet can be used for couponing and purchasing, many respondents using the Internet reported its primary function to be information only with the expectation of branching into other services. The higher the price of a service the higher the perceived risk associated with the purchase. Coupons are one means of reducing a customer risk and diminishing barriers to trying a new restaurant or rewarding frequent patronage (Cheong, 1993).

Contrary to previous findings that collateral material, coupons and price discounts, direct mail, frequent diner programs, menu promotions and specialty product merchandising were frequently used, the respon- dents in this study appeared to be advertising and promotion averse. Jones’ (1997) findings that new restaurants were more likely to use fli- ers and frequent diner promotions while established restaurants were more likely to use brochures, press kits, and specialty merchandise were not supported. The current study found food sample promotions more likely to be part of established restaurant marketing strategies.

This is an exploratory study of marketing and promotion strategies used by restaurants located in an urban setting. Because the study was conducted in a single urban center, the findings cannot be generalized outside of the area studied. People reportedly eat out more frequently in this urban center than anyplace else in the United States. This factor must also be taken into consideration when assessing the findings for management implications and actions.

The fact that the majority of these randomly selected participants did not use advertising and promotion strategies and found limited benefit in their implementation is problematic. Restaurants are missing valuable opportunities to build their businesses. The value in the strategies where a

Jackson, Titz, and DeFranco 29

significant difference was found in terms of usage pattern and derived benefit is important. Restaurants with larger seating capacities, business longevity, higher average guest check, and sophisticated corporate struc- tures are more likely to implement advertising and promotion strategies and find benefit in their usage. This finding infers that opportunities to provide training and education to restaurants is needed. Such training would reduce the “growing pains” of new businesses and increase the probability for restaurant longevity. An important message resides in these findings for smaller independent operators who want to grow their business and bottom line. While radio advertising and traditional coupon programs may be out of reach, there are affordable advertising and pro- motional strategies that do produce results. Food samples and Web sites are two economical strategies with the potential to effectively build sales and awareness. Coupons can be economically delivered via a restaurant Web-site. While identifying appropriate electronic or Web-site strategies are beyond the scope of the current study, one only need to look at several large restaurant companies for examples of creative use of the medium.

Though exploratory in design, this study identifies advertising and promotion strategies that exhibit varying degrees at restaurant effec- tiveness in urban markets. While not generalizable to the larger popula- tion, this study raises the following questions for the future.

1. Are their differences between successful advertising and promo- tion strategies used in urban, rural, or suburban restaurants?

2. Which advertising and promotion strategies are the most effective in achieving their intended goals?

Regarding Internet advertising and promotion strategies, the question raised concerns user-friendly applications that are effectively targeted and measured. Finally, relative to traditional urban restaurant environ- ments, it would appear valuable to validate this study’s findings with those of a similar urban environment.

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