Discounts and offers can provide short-term sales boosts, attract new customers, and help clear old inventory. However, frequent or poorly managed discounts can significantly hurt a brand's long-term health by eroding profit margins and devaluing the brand's perception in the eyes of consumers. 

Impact on brand perception

• Devaluation of the brand: Frequent, company-wide discounts can train customers to expect lower prices, shifting your brand's image from one of quality to one of affordability. The German hardware store chain Praktiker went out of business after training its customers to wait for its bimonthly 20% sale.
• Erosion of perceived value: Discounts can undermine the perceived value of your products, especially if your brand is positioned as premium or luxury. Customers may begin to question the actual worth of an item if they see it constantly marked down.
• Transactional loyalty over emotional loyalty: Relying heavily on discounts attracts price-sensitive customers who are loyal to the low price, not the brand itself. These customers are likely to switch to a competitor the moment a better offer appears, which results in high churn rates.
• Signals of poor quality: When consumers lack existing knowledge about a brand, heavy discounting can lead them to believe the products are of poorer quality. This can cause long-term damage to brand reputation.

Impact on profitability

• Eroded profit margins: The most direct impact of discounting is on profitability. A company must sell a higher volume of product to achieve the same profit after a discount. For example, a 10% discount may require a 50% increase in sales to maintain the same profit dollars.
• Increased customer acquisition costs (CAC): When you acquire a customer with a discount, the money you lose on that first purchase means less gross margin to cover your CAC. This can turn an otherwise profitable customer relationship into a money-losing one.
• Cannibalization of full-price sales: When customers learn to anticipate sales, they delay purchases until the next promotion. This cannibalizes your regular, full-price sales and can make revenue and cash flow unpredictable.
• Operational strain: Large sales volumes during promotions can put a strain on inventory management, customer service, and other operational areas. This can lead to delays and a diminished customer experience, further harming the brand. 

Best practices for strategic discounting

To mitigate the risks, discounts should be used strategically and sparingly.

• Personalize offers: Use customer data to target specific segments rather than offering sitewide discounts. For example, offer an introductory discount to new customers or a special loyalty reward to your most valued patrons.
• Bundle services: Instead of discounting a single product, create a bundle of complementary products or services at a value price. This increases the average order value while still providing a perceived deal to the customer.
• Offer limited-time sales: Flash sales or other time-sensitive promotions can create urgency without establishing a long-term expectation for lower prices.
• Create exclusive rewards: Implement a loyalty or points program that gives customers access to exclusive discounts, early access, or other VIP benefits. This makes the discounts feel earned rather than expected.
• Target specific products: Instead of blanket discounts, apply markdowns to slow-moving inventory or high-margin products that can absorb the price reduction.
• Frame value-additions: Instead of solely focusing on a price cut, promote a deal that adds value, such as "buy one, get one free," a free gift with purchase, or free shipping.