We're signed up to receive offers from a restaurant, Not Your Average Joes. They recently ran a promotion that I thought was clever and effective: For each $100 in gift cards purchased, the customer receives a $25 gift card free. Why does this work?

• Gift certificates are highly appealing as a promotion. See a previous blog article for further elaboration, but in a nutshell:
  • A significant portion of gift certificates are lost or forgotten. This means that you can expect a higher margin from $100 gift card sale than $100 product/service sale, right off the bat.
  • Being paid first, performing the sale/service later: instant cash flow benefit
  • Consumers typically spend more when there’s a gift card. Suddenly a $130 purchase only “seems” like it costs $30, with a $100 gift card.
• We find the restaurant to be very good but a tad expensive. We go there occasionally, as something special. With effectively a 20% off discount, the restaurant is back in-play as a regular option. This is the very essence of a good coupon: it lures potential customers, those on the cusp, as active customers.
• Unless you’re going with a large group, it would be hard to spend $125 at one meal. So, this encourages future visits.
• With $125 that needs to be spent, someone may be more likely to coordinate a larger group… even better, the restaurant could be exposed to new customers.
• If someone did spend $125 in one meal, it would likely be an awesome meal (bottle of wine, full dessert options, etc.), leaving a better impression and encouraging future visits.

This coupon is hitting nearly all of the elements of an effective promotion, and with the non-redemption aspect of gift certificates + the cash flow float, it costs the company relatively very little.