What is the best way to retain customers in hospitality/ retail business without a need of giving away free stuff and perks?

This is a question I received and here is my answer.

I would think about differentiating your core product/service offering from everyone else.

Don’t be like everyone else. Identify who your customer is (or who you want your customer to be) and figure out what their needs/desires are and create your product offering to meet those needs.

Be different and unique. Start from the end result – your ideal customer persona and they being “WOWed” by what you offer, and figure out how you can get there in your product/service offerings.

The problem I see in the marketplace is that product/services do not differentiate from the competition so the consumer can’t really distinguish how/why one product is better than another. This then leads them to choose based on best price or convenience, or in your case, how many freebies they can get for the same price that another competitor offers. It’s the classic “race to the bottom” that is prevalent in so many industries. In this scenario, only the largest competitors win because they usually have the economies of scale to compete on price.

Small businesses should rarely compete in price, in my opinion. If you might win for a while, but then another bigger competitor will copy you and then beat you on economies of scale. Unless you have a way to defend from competition (like intellectual property no one else can copy), then competing on price is a bad idea.

Do competitive research to find out what others are doing and if it makes sense, copy some of what they do, and be different in everything else.

When you can successfully do the above for your target customer, you may have a better opportunity to charge higher prices for the differentiated product/service that you offer, which makes it easier to pay for the freebies that may be expected.

Or, you may be able to get away from having to provide freebies because your customers are there not for that, but because you are different from anyone else or doing something so special and unique that they do not care so much about the freebies.