Is this a bad business idea?
13
January
1/13/2009:
Last week, Hoboken411 reported there was some fishy business going on at Mesh Spa.
They closed abruptly without notifying customers. However, they indicated that “water damage” was the reason why they closed for “renovations.” Whether or not they re-open or when, is irrelevant for this story.
Jersey City spa tries to capitalize
The Spa at Port Liberte recently announced some kind of “special” for those currently in possession of a Mesh Spa gift certificate – offering “discounts” that are valued up to 75% the total value. Sounds generous? Maybe – but do the math and realize what you’re getting into:
Basically – they’re offering 25% off three services if you surrender your Mesh Spa gift certificate.
Example: You received a $100 GC to Mesh. Take 25% off your first massage ($100-$25=$75), 25% off your second, and 25% off your third.
Your $100 gift certificate now cost you $225! WTF!
I think this is a poorly executed idea. While it’s always nice to receive a discount for services – not everyone is necessarily in the market for luxury services like this. The beginning of the year, after the holidays – is usually a slow time anyway – why not just offer those 25% discounts for every new customer during the month of January?
If anything – make the deal for Mesh Spa gift certificate holders almost too good to turn down. Your “objective” should be to get new customers in your spa – and hopefully win them over. A mediocre discount – and multiple visits to “redeem” that gift certificate is way too complicated. How about a single 50% (or more) discount for Mesh GC holders? The purpose of the gift certificate was to give someone a FREE massage… having them pay almost full price pretty much defeats the purpose – especially since this spa is outside of Hoboken!
C’mon people! Have you not seen the state of our economy?
January 13th 2009 - 16:54:26 |
i can see your point.. but this spa didn’t get any of the profits… so at least they are accepting something.. even if it is structured that way..
and.. yes the objective is to gain customers.. but to redeem it for 50% as you are suggesting is a little much .. don’t you think ???????? are you going to help pay the staff at Liberte 411 if they are going to honor 50% of the g.c? I don’t think so..! I think you forget that the owners still have to pay their staff each time they honor a gift card which they received ZERO in return. And, I am assuming MESH sold a lot of gift cards.. The owners at Liberte probably can do better things with their money like advertise here.. don’t you think?
And when it comes down to it.. The Spa at Porte Liberte does not have to redeem any of it .. at least they are redeeming something.. its either that.. or nothing..
Be thankful someone is taking it at all.. b/c right now.. those Mesh G.C. are worth zero..unless they reopen. And for now.. seems like it is uncertain whether that will happen.
I guess my only problem with their logic is if they are going to be honoring in 25% increments anyway.. y not honor the whole face amount.. y just 75%?
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January 13th 2009 - 17:08:00 |
beamrider9 wrote:
Uh, your reasoning is a little flawed here. Assuming massages cost $100 at both places:
Mesh:
#1 – free (use $100 gift card)
#2 – $100
#3 – $100
Total: $200
Port Liberte:
#1 – $75
#2 – $75
#3 – $75
Total: $225
So in your scenario, you’re out $25 more than you’d have been if Mesh was still around. I don’t see where “Your $100 gift certificate now cost you $225!” comes from.
Seems like a decent promotion to me. At least you’re getting some value out of the gift card by going there, as opposed to no value anywhere else.
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January 13th 2009 - 17:29:14 |
MidnightRacer wrote:
If you don’t get it, it means that what should’ve been for free (gift card) now costs you $225 to redeem only 75% of the original value ($100).
Before Mesh suddenly closed down, this is what service cost you:
$100 Mesh gift card redeemed at Mesh:
cost to gift recipient = $0 (free)
$100 Mesh gift card redeemed at Port Liberte:
cost to gift recipient = $225 (extra + handing over card)
This is bad business practice. The gift card recipient already feels gyped because of Mesh closing down. But to offer only 75% off spread across as 25% off 3 services forces you to go there three times and pay out of pocket $225 what you should’ve gotten as a freebie value of $100. I think Port Liberte should’ve honored the full value $100 and write it off their taxes as promotional costs to recoup a part of the freebie. People would loev them for the better. Otherwise, forcing me to go or use them three times for only 75% of face value feels like getting ripped off a second time around.
If someone ever gave me a gift card, I would never expect that I had to hand over $225 to use it.
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January 13th 2009 - 17:35:31 |
Thanks MR! And what if I only want ONE massage?
That’s the reason I suggested a 50% one-time discount. At least it doesn’t sting as much – and would compel people to leave town a bit more.
My reasoning for the “bad business idea” is that it wasn’t enough of an incentive…
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January 13th 2009 - 17:35:52 |
What does Port Liberte pay an employee/freelancer for a massage/service? I’m sure it’s not 100% of fee charged. Let’s say it’s 25% of fee charged to client.
Assume, a $100 massage costs Port Liberte $25 in labor/supply costs.
A client feels bad about Mesh walking, Port Liberte offers to honor 100% face value.
Cost to them, $25. Cost to buy promotional materials and media space per person???
Good neighborly move =
Now you’ve got new people who appreciate what you did. Good will is everything in business.
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January 13th 2009 - 17:46:58 |
(disclaimer, I’m not an accountant, nor CPA, but I did stay at a Holiday Inn – Express)
Check it out.
$100 fee charged to a client has a 25% operating cost = $25 for the business.
Port Liberte honors Mesh gift card 100% of $100 face value and writes off that $100 as promotional cost and recoups somewhere around 25% tax write off.
Cost to Port Liberte for honoring competitor’s gift card = $25
Tax write-off for promotional costs = $25
Financial status = break even
Good Will for branding = net positive
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January 13th 2009 - 17:58:36 |
just be glad someone is taking those G.C.! remember as it is .. right now those G.C.s are worth ZERO!
its easier said than done if you are not the one taking the loss on taking in those gift cards. I am sure the cost of labor and costs is higher than the $25.00. (my x roommate use to get $30 a massage in a spa ..) so I imagine it is slightly more than the $25.00.
In the end.. the only real bad business practice is not allowing the G.C. holders to get a refund on their cards. If MESH can not give a reopening date.. then they should let the customers get a refund. But then I guess .. i should wait till pigs can fly too huh?
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January 13th 2009 - 17:58:55 |
BIFFY B WILL GIVE ALL THE LADIES ON H411 MASSAGES FOR FREE
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January 13th 2009 - 18:19:49 |
MidnightRacer wrote:
This doesn’t make sense. If, as you seem to be implying, a person wants to get one massage:
1 massage at Mesh: $100 – $100 = $0
1 massage at Port Liberte: $100 – $25 = $75
So you’re getting some value out of the card, but not full value. Where this $225 figure comes from remains a mystery – unless you’re operating under some kind of odd “I must get full value out of this card and will continue spending money until I do it” attitude, in which case you’re comparing getting one massage at one place to multiple massages at another, which is just plain silly.
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January 13th 2009 - 18:24:38 |
hoboken411 wrote:
I don’t think this spa is trying to attract the customer who wants one massage (for free or half price) so not sure they are going to be all that concerned with alienating those customers.
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January 13th 2009 - 18:27:55 |
How? Because if you read Porte Liberte’s website offer, they ask that you come in for 3 services, or 3 times for same service in order to redeem 25%, 25%, and 25% for 3 transactions or total of 3 services.
http://portlibertespa.com/mesh%20spa%20hoboken.htm
MidnightRacer wrote:
Reading their website seems as though they want you to come in 3 times to redeem the freebie gifted to you by a friend from a competitor. In the end, instead of getting a massage for free, at no cost to you, paid for by a friend, you have to fork over $225 for 3 $75 massages (or services).
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January 13th 2009 - 18:37:22 |
MidnightRacer wrote:
You make it sound like you have to go three times to get any value, which is clearly not true.
But seriously, you should call the Better Business Bureau and complain. “How DARE they not be more generous with their promotions!!”
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January 13th 2009 - 18:40:30 |
you are right 411!.. they are not trying to attract the customer who wants only one massage..! but who can blame them…? Isn’t that every businesses’ goal …to have repeat business? ..
alienating what customers? this spa is the only spa so far that is willing to even honor anything …! so what if its only 25% if you only go one time .. beats having nothing at all!
it may have not been enough of an incentive.. but bad business idea? i don’t know about that.
but i will say this…
bad business is closing your doors all of a sudden.. having your phone say it is disconnected.. (if they did have water damage.. you can always forward your calls or have a answering service..not have your phone disconnected. It sounds little strange to me.) then put up a sign saying you are closed for “renovations” and then say its water damage? i thought it was renovations? not emergency repair. So 411 y don’t you say something about that as bad business instead?
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January 13th 2009 - 18:41:20 |
I think my alternative offer would make for greater promotion. It would only cost them a fraction which they could recoup in write-offs for promotion. And everyone’s the better for it. But they can feel free to manage as they wish.
And you do have to go there three times to redeem the maximum 75% of the value from the competitor’s G.C.
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January 13th 2009 - 19:11:25 |
bc2000 wrote:
Exactly. That’s what I was saying. It doesn’t make sense for them to try and attract customers who will only go once. Of course they want to create what we call in marketing a “loyalty program” rather than a one time discount.
The people who only want one massage are not the target audience.
So is this a bad business idea? Absolutely not. Bottom line – they are offering some discount to people whose gift cards are worth nothing (right now). For the people who want multiple massages, (assuming the service is good at this spa), why would they go somewhere else if they can at least get some discount here?
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January 13th 2009 - 20:43:03 |
The whole promotion just reeks of unnecessary complications.
Also, I’m gonna pass on Biffy’s offer. Cute, but I’ll pass!
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