As we emerge from the frenzy of Black Friday and Cyber Monday, this is the perfect time to sit back and reflect on your brand’s use of discounting and sales. Many eCommerce brands will have gone heavy with sales and discounts over the past few weeks, which might have driven impressive short-term sales. However, as marketers, we must ask ourselves – is it driving the right customer behaviour, are we engaging the right customers? What is the long-term impact on our brand’s value, and ultimately, is it profitable?
The risks of overusing discounts
When faced with the challenge of driving more purchases, we can often default to discounts as our only go-to solution. However, relying heavily on pushing discounts can have some significant drawbacks.
- Brand value erosion
Regular discounts can cheapen your brand’s perceived value as customers might begin associating your products or services with lower prices, undermining the image you’ve worked to build. - Customer expectation
When overused, discounts create a cycle of expectation, as customers start waiting for sales or promotions and become unwilling to pay full price. - Profitability
Ultimately, frequent discounting eats into your margins. Even if you’re driving sales, the reduced price point may not contribute meaningfully to your bottom line.
Driving profitability is critical, especially in the challenging economic climate we have today where longevity is a key goal for any business. And this becomes an even greater challenge with the new type of customer that has evolved from the cost-of-living crisis.
A customer who:
- Shops around more frequently
- Is less loyal to brands
- Is highly price-sensitive
These changes call for a smarter and more strategic approach to short-term sales tactics like discounting, that balance short-term sales goals with long-term profitability.
A sensible way that marketers can approach this is by looking at three core areas:
- Loyalty – is your definition of a loyal customer up to date?
- Price Sensitivity – how price-sensitive is your customer database?
- Campaigns – which of your campaigns need discounts to improve their performance and which ones don’t?
Redefine loyalty for today’s market
Customers nowadays are redefining how and when they will be loyal to a brand, therefore brands need to do the same and clarify what loyalty looks like for them in 2025.
Three questions you can ask yourself are:
- When was the last time you revisited what loyalty means for your brand? Some brands may have created this definition years ago, so you need to take a look to see if this still feels relevant in today’s climate.
- What data points are you using to identify loyal customers? Frequency of purchases alone may no longer be sufficient if customers are more likely to shop around. If you focus on using this metric you may see a declining picture of loyalty at your brand. Therefore you may want to consider other metrics like customers with a higher-than-average order value, or those that have a total lifetime spend over a certain amount. This way you may identify new pots of potentially loyal customers you would have otherwise missed.
- Do you differentiate between VIPs and loyal customers? These groups may overlap but could require different approaches. You need to make sure you have clear definitions for what you are describing and make sure everyone is on the same page to avoid confusion.
Understand customer price sensitivity
By segmenting your customer base on price sensitivity, you can better understand how price impacts their purchasing decisions and, therefore, which customers may need discounts more than others.
This requires an analysis of your customer data but will leave you with highly valuable information on how your customers behave.
What you need to do:
- Split your database in two based on whether they have ever purchased at a cheaper price or not:
Simply segment those customers who have never purchased at a cheaper price (via a sale or with a discount). Those customers who have never purchased at a reduced price are likely to be your most profitable and there should be a big focus on retaining these customers. These customers also do not need to be offering unnecessary discounts, as they have shown themselves not to be price-sensitive. Giving them a discount code means you could lose revenue unnecessarily.
The remaining members of your database are those who have purchased at a cheaper price at least once, therefore these are on the price sensitivity scale.
- Understand how sensitive those are who are on the price sensitivity scale:
Your next step is to understand how many purchases they have made at a cheaper price in comparison to their total lifetime purchases. If a customer has purchased 10 times and all 10 times it has been in a sale or with a discount code, they are very price sensitive. The key is knowing these customers will probably always be, and therefore will always need a promotional nudge to make a purchase. You should also consider how many of these customers were in your existing loyalty pot. Are they really loyal customers you want to grow and nurture if they are unprofitable?
On the other hand, if a customer has made 10 purchases but has only purchased at a cheaper price 3 times they are much less price sensitive, therefore there may be other non-discount incentives like fast delivery or personalised recommendations that could be used to motivate their purchase instead.
- Understand the type of promotion that influenced the customer the most:
Customers within your price sensitivity segment can be broken down a stage further by understanding what the driver for their cheaper purchase was. Was it from a sale or from a discount code? These are different buying behaviours.
Customers who purchase within a sale have specifically waited for a cheaper price, therefore are very price sensitive. However a discount code is often received by a customer out of the blue, therefore can be more of an impulse purchase, so these customers could be regarded as less price sensitive and in those cases, a different non-discount incentive again could be tested to see if that could also have the same impulse purchase effect.
Reassess your use of discounts within key campaigns
Discount codes are often used in two key lifecycle campaigns, but you should consider if this is the right use case.
- For VIPs: As these customers are supposedly your best customers, they are most likely very loyal and happy purchasing from you no matter what. Therefore you should control the amount of money off these customers are given, as you could be losing revenue from customers who are happy to pay full price. Instead consider other value you can give back to these special customers such as experiential rewards, exclusive early access, loyalty points, free or fast delivery, dedicated customer service lines or personalised gifts.
- For lapsing customers: Discounts are often heavily used within these campaigns to draw customers back, but you need to assess—are you tempting the right customers back? Those who are less price sensitive and more profitable? Alternative ideas could be to use their purchase history to suggest relevant new products released since their last purchase to drive FOMO.
Finally, discounts are frequently used in a handful of high-intent trigger automation, but you should again consider if this is the right approach.
- Wish list campaigns: These customers have shared items they would like to purchase with you. The intent is there, they may just be waiting for something like pay day. So rather than trigger a discount code to encourage them to purchase what is on their wish list, be patient and alternatively try persuasive content such as customer reviews to move them to purchase.
- Back-in-stock campaign: These scenarios show even more intent than a wish list as the customer has raised their hand to say they want to buy this item, please let them know when they can. All they simply need is a reminder or notification when they can. If that isn’t enough offer them non-discount incentives like fast delivery so they can get the items they have been waiting for quicker!
- Abandoned cart emails: These are the highest intent as the customer has gone to the basket, but something has stopped them. Instead of immediately offering a discount, remind customers of their cart with urgency-focused messaging. They may simply have been distracted. Test alternative incentives like free shipping for those who visit the delivery page. However, if you do need to provide discounts to gain that purchase, then save them for the 3rd or 4th email in your journey.
Remember, the key is to test. Every business is unique, so experiment with these ideas to find what resonates best with your audience.
Overall, discounts and promotions do have their place in marketing, but they shouldn’t dominate your marketing strategy. By understanding customer loyalty, price sensitivity, and purchase behaviour, you can craft campaigns for the right groups of customers that maximise profitability while minimizing unnecessary price reductions.
