Avoid the Discount Trap: Why Consistent Discounting Erodes Brand Value, Profitability and Long Term Growth
Marketers love a quick win. A spike in sales. A graph that moves up and to the right. Discounts deliver that feeling instantly. The problem is that every time you reduce your price, you are not only losing margin. You are also reshaping how customers perceive your value.
When discounting becomes habitual, it teaches customers to wait for deals, lowers your pricing power and begins to weaken your entire brand position. Here is how and why that happens, supported by real data and case studies.
1. Introduction: The Seduction of the Quick Win
A short term discount creates an attractive burst of revenue, which makes leadership happy in the moment. The danger is that repeated discounting sets new customer expectations that are extremely difficult to reverse.
Promotional intensity in FMCG across Europe increased by 15 percent year over year in Q1, yet volume still declined by 0.2 percent. (ft.com)
Heavier discounting did not equal healthier performance. This is the first warning sign of the trap.
2. Why Brands Fall Into the Discount Trap
There are several reasons why organisations fall into repeated discounting:
Pressure to hit quarterly numbers.
Competitors offering discounts which triggers a race to the bottom.
Leadership teams misunderstanding discounting as a growth strategy instead of a temporary tactic.
Weak brand differentiation which leaves price as the only lever.
Once discounting becomes the default move, it starts replacing brand building, margin stewardship and long term value creation.
3. How Discounting Erodes Brand Value
a) It reduces perceived value
When the price keeps dropping, customers anchor to the discounted price rather than the real one. If something is always discounted, the full price begins to feel inflated or untrustworthy. Academic research shows that deep discounting reduces perceived quality differences and weakens brand value. (onlinelibrary.wiley.com)
b) It removes price integrity
If customers learn that a product is regularly on sale, they will wait for the next offer. The brand loses the ability to charge full price. Michael Kors is a well known example. Frequent heavy discounting led to a 25 percent sales drop from their peak in 2016. (wsj.com)
c) It attracts low value customers
Discount driven customers rarely become loyal. They are motivated by price rather than product or brand.
One ecommerce brand that moved away from discount led acquisition cut churn by 31 percent, increased full price purchases by 42 percent and grew lifetime value by 29 percent. (bluemonarchgroup.com)
d) It weakens brand positioning
Brands that rely on premium positioning cannot sustain constant discounts. It signals scarcity, lower quality and lack of desirability. A study in high end dining showed that discount promotions lowered perceived exclusivity and perceived quality. (researchgate.net)
Comparative Table: What They Did vs What They Should Have Done
Let’s bring this to life with some simple examples from brands that you will all recognise:
Brand | What They Did | What They Should Have Done | Source |
|---|---|---|---|
Michael Kors | Relied heavily on outlet channels and constant discounting | Protect exclusivity, reduce promotions, focus on brand elevation | Wall Street Journal |
Gap | Frequent blanket discounts such as “40 percent off everything” | Strengthen product and brand story, reduce promotional intensity | Gap earnings reports |
JCPenney | Conditioned customers to expect constant sales, then suddenly removed discounts | Transition gradually, build a value story, test new pricing models | HBR, NYT |
Debenhams | Continuous promotions to drive traffic | Improve assortment, store experience and service rather than rely on discounts | BBC, The Guardian |
Bed Bath and Beyond | Built brand identity around endless “20 percent off” coupons | Create loyalty benefits that do not rely on price cuts, improve online competitiveness | MarketWatch |
Toys “R” Us | Discounted to compete with Amazon and Walmart | Invest in omnichannel experience, add value through service or events | Business Insider |
Sears | Used discounting to prop up declining footfall | Modernise stores, improve product lines, rebrand with quality focus | Chicago Tribune |
Ralph Lauren | Historically had heavy discounting in certain lines | Reduced promotions and built a stronger brand elevation strategy | Vogue Business |
4. How Discounting Erodes Profitability
This is where the hard numbers hit.
Each discount reduces gross margin.
To offset a 20 % price drop you need about 25 % extra volume just to break even (and that assumes everything else remains constant).
Most brands don’t track this properly.
More importantly: lower margin means less reinvestment. Less money for product, for innovation, for brand building. The side effect: you become dependent on the discount to hit numbers. And that’s a trap.
5. The Long-Term Consequences: The Road to Brand Decline
When discounting becomes systemic you build structural problems:
Promotion addiction. Customers stop buying at full price. Price cue becomes “wait for the deal.”
Price wars. Competitors escalate your discounting; you chase them. Everyone loses.
Brand equity decline. Willingness to pay drops. Your differential vanishes.
Reduced reinvestment. Less margin → less product improvement → weaker offering → more discounting.
Case in point: in luxury, brands that allowed heavy discounting became diluted. One analysis showed that the share of discounted stock for several major brands had to be reduced by more than half to begin reversing the perception damage. Vogue+1
6. When Discounts Do Make Sense (And How to Use Them Properly)
I’m not saying discounting is evil. It’s a tool. But a tool without strategy becomes a weapon that wounds.
Use discounts when:
It’s clearance or end-of-season — inventory management, not signalling value collapse.
It’s targeted to acquisition with clear modelling on LTV.
It’s loyalty-driven — reward behaviour rather than slash price.
It’s finite and controlled — not indefinite “site-wide” discounts.
Research by Optimove found that new-customer discounts in the 5–20 % range can help, but going deeper offers negligible repurchase rate or lifetime value benefit. peelinsights.com
So yes, use discounting smartly. Don’t lean on it.
7. Alternatives to Discounting That Grow Value & Profitability
If discounting is the easy way out, what do the strong brands do instead?
Build differentiation — make your product, experience or brand worth paying for.
Improve product quality and design.
Enhance customer experience (delivery, service, onboarding).
Use value-added strategies: bundling, versioning, exclusives.
Psychological pricing (not always cheaper, but smarter).
Invest in brand fame and emotional connection — brands with higher equity can withstand pricing pressure. For instance, brand strength correlates with higher price elasticity. Insider+1
As one luxury-brand analysis noted: reducing discounting, rationalising product lines and focusing on positioning helped improve margin to 68.8 % for Ralph Lauren in a difficult market. Vogue
9. Conclusion: Protect the Brand, Protect the Margin
Discounting is easy. Build prompting frameworks, campaign triggers, slash price, sell more.
But building brand value? That’s harder. It requires discipline. It requires resisting the temptation of the quick win. It demands strategic clarity.
The strongest brands don’t need to discount to survive because they build value people legitimately pay for.
They understand that the most profitable sale is the one you never had to discount.
Let’s not just chase sales. Let’s build businesses that can charge full price and grow full stop.
Strategy School Followers:
Practical Exercise – Your Anti-Discount Strategy Map
Here’s how to apply this strategically across your business:
Step 1: Audit every discount you ran in the past 12 months.
List: type (site-wide, clearance, loyalty), depth (% off), volume uplift, margin impact, repeat behaviour.
Step 2: For each discount, calculate the true cost.
Lost margin (price vs standard).
Extra volume required to break even.
Did the uplift happen? If not, mark it “wasted”.
Step 3: Identify what customer behaviour you’re training.
Are customers waiting for deals?
Are full-price purchases dropping?
Are acquisition costs rising?
Step 4: For each discount event, map an alternative.
Instead of 30 % off, maybe offer a bundle, early-access benefit, exclusive version, loyalty upgrade.
Step 5: Build a “No Discount” decision-framework.
Make a checklist that every discount must pass:
Does this preserve margin?
Does it maintain brand value?
Are we modelling LTV and behaviour train-in?
Is this the best lever to use right now?
