The hidden costs of discounting in eCommerce

From Black Friday blowouts to seasonal sales, discounts are often the go-to strategy for attracting customers and closing sales.

They’re easy to implement and come with an immediate boost in website traffic. But here’s the catch – while they might look good on the surface, discounts come with significant hidden costs that many businesses fail to recognize.

Here’s the truth: discounting is a tool, not a strategy. And when overused or poorly executed, it often creates more problems than it solves.

The margin meltdown

One of the biggest, most direct issues with discounting is how it affects your bottom line. When you cut prices, you reduce revenue per sale and profit margins.

The math behind discount erosion  

Let’s look at a simple example to understand the damage:

• Your product retails at $100 with a 30% margin ($30 profit)
• A 20% discount reduces the sale price to $80
• Your profit drops to $10 - that's a 66% profit reduction
• You need to sell 3x more units to make the same profit
• Most discounts don't generate 3x volume

Discounting is often a losing game unless you can sell significantly more volume to offset that loss. But here’s the harsh reality for most eCommerce businesses: volume rarely makes up for lost margins.

Instead of boosting profit, discounts frequently leave businesses scrambling to recover what they’ve given away.

The downward spiral of customer expectations

When it comes to repetitive discounting, there’s also a hidden psychological cost. Offering frequent promotions trains your customers to expect them, creating a cycle that’s hard to break.

Why regular discounting devalues your pricing  

If customers know your store has frequent sales, why would they pay full price? Over time, they’ll start delaying purchases and waiting for the next promotion. Worse, they may begin to perceive your regular prices as overinflated or unfair.

Take mid-tier retailers like GAP, for example. Leading up to 2019, the brand's reliance on near-constant sales eventually trained its customer base to buy only during promotions, and full-price sales became virtually non-existent.

This "discount trap" isn’t just bad for conversions; it’s a dangerous spiral that can be hard to escape.

The brand devaluation problem

Price and quality are closely linked in the consumer’s mind. When a product is consistently discounted, its perceived value suffers.

How discounts damage premium brand perception  

Brands aren’t just built on products; they’re built on trust and aspiration. Repetitive promotions can send the wrong message if you’re positioning yourself as a premium or high-quality brand. Over time, your customers may see your products as low-quality or ordinary – even if they’re not.

Luxury brands like Apple and Chanel maintain strict pricing policies to protect their premium image. They rarely, if ever, use discounts.

Instead, they focus on crafting an experience and delivering consistent value, ensuring their customers see the products as worth the full asking price.

The inventory illusion

It’s common to use discounts to clear excess stock. However, this is often a short-term fix for faulty inventory management.

Why it’s a band-aid, not a solution  

When discounts are used to move unsold items quickly, they mask the real problem. Was the product over-ordered? Poorly marketed? Did it fail to resonate with your customer base? Instead of addressing these root causes, discounts create a false sense of resolution.

Over-reliance on discounting can also distort your future buying decisions. If clearing inventory depends on price reductions, your business could chase unprofitable sales rather than focusing on products that deliver value and margins.

The data blindspot

Discounts often create a temporary spike in sales, especially during events like flash sales or major holidays. But this surge in activity can be deceiving.

The challenge of measuring true incrementality  

Sales from discounted products don’t always translate into true revenue increases. Without measuring incrementality (the number of additional sales generated from the discount), it’s impossible to know whether that spike represents actual growth or just pulled-forward purchases that would have happened anyway.

Using control groups is one of the best ways to measure the real impact of discounts. By comparing the behavior of shoppers who saw discounted pricing versus those who didn’t, you can avoid making decisions based on misleading data.

The competitive conundrum

Discount wars are one of the quickest ways to erode an entire market's margins.

The race to the bottom  

When one retailer discounts heavily, competitors often feel compelled to follow suit. This price-cutting cycle can quickly spiral out of control, leaving little room for profitability. Instead of competing on price, businesses should focus on differentiation through unique value propositions, exceptional customer experience, and personalization.

What are the smarter alternatives?

Discounting can have its place, but relying on it as a core strategy is dangerous. Here are more innovative, margin-friendly approaches to promote your products:

1. Targeted offers with impact

Rather than blanket discounts, use targeted promotions that incentivize high-intent customers. For instance, provide free shipping for first-time buyers as they reach the checkout page.

2. Value-adding promotions

Offer promotions that protect your pricing while adding perceived value. For example:

• Bundle deals ("Buy one, get a second at 50% off")
• Exclusive rewards for loyal customers (e.g., earn points on purchases)

3. Personalization wins conversions

With tools like RevLifter’s intelligent onsite promotions, you can deliver offers tailored to the shopper’s behavior and preferences. Examples include:

• Cart value thresholds ("Spend $20 more to unlock free shipping")
• Dynamic incentives for abandoning shoppers (coupon codes delivered via email)

When discounting actually makes sense

Not all discounts are bad. Here are situations where they can be effective:

• Genuine clearance needs: Eliminate outdated stock to make room for new arrivals.
• Strategic customer acquisition: Use discounts intentionally to attract first-time buyers (with a focus on lifetime value).
• Limited-time events: Create urgency through flash sales or holiday-specific promotions, but use them sparingly.

Build a better promotional strategy today

Discounting is a formidable tool, but it can be dangerous when misused. To create thoughtful campaigns that grow your revenue and margins, focus on more intelligent strategies like personalization, loyalty programs, and targeting high-value customers.