Impact of Discounts on Revenue

Are you discounting your way to unprofitability? Discounts aren’t just marketing tactics, they’re financial decisions. And when they aren’t analyzed properly, they become a profit drain that no one notices until it’s too late. Here’s what happens behind the scenes: ❌ Marketing thinks discounts are boosting sales. ❌ Finance sees revenue increasing and doesn’t question the margins… yet. But here’s the real problem. Not all customers respond to discounts the same way. 📉 The Wrong Way to Discount: - Blanket sitewide discounts that attract deal-hunters who never return. - Seasonal clearance sales that cannibalize future full-price purchases. - Overuse of first-time buyer discounts that teach customers to wait for a sale. 📈 The Right Way to Discount: - Segmented Discounts – Reward high-LTV customers, not just price-sensitive ones. - Cohort Analysis – Track whether discounted buyers actually return at the same rate as full-price buyers. - Contribution Margin Tracking – Ensure discounts don’t erode gross profit per order beyond what was planned. The best CFOs don’t just approve discounting strategies. They pressure test them against long-term profitability. If you don’t track post-discount retention, you’re not optimizing. You’re guessing. How does your team analyze discounting today?

Despite a challenging retail climate, MYER managed to grow total sales by 1.9% and increase online sales by 9% in the second half of FY25. However, in a market saturated with promotions and squeezed margins, profitability has taken a hit. Myer reported margin erosion due to “heightened promotional activity across the broader retail sector.” To remain competitive, more discounting became necessary, directly impacting their bottom line. What could be done differently? Focus on product differentiation over price wars. A strong brand like Myer, with access to exclusive labels, should lead with value and uniqueness, not discount tags. Consumers are clearly cautious and value-driven, influenced by ongoing cost-of-living pressures and macroeconomic uncertainty. These conditions have made discounting feel like a necessity to maintain sales volumes. Widespread promotions have also created volatile and fiercely competitive trading conditions, forcing retailers like Myer to chase volume at the expense of margin. 💡 My thoughts: Over-reliance on discounting may lift short-term sales but it undermines long-term profitability and conditions customers to expect sales. It reinforces why product differentiation and strong brand positioning are essential to avoid a race to the bottom. And crucially, smarter inventory forecasting and tighter category planning reduce the need for deep markdowns by ensuring stock levels better reflect actual demand.

Inflation often forces businesses into a dilemma—raise prices and risk losing customers, or keep prices stable and shrink margins. But what if data could help strike the perfect balance? 🚀 Challenge: Flipkart, one of India’s largest e-commerce platforms, noticed fluctuating customer retention rates and declining repeat purchases, especially during inflationary periods. Traditional deep-discount campaigns led to short-term sales spikes but failed to build long-term customer loyalty. 🔎 Solution: Data-Driven Discounting Strategy Flipkart’s analytics team uncovered a key insight: Small, frequent discounts (e.g., 5-10% on repeat purchases) led to higher engagement. Personalized offers based on purchase history encouraged repeat buys. A/B testing revealed that customers preferred consistency over occasional deep discounts. 💡 Implementation: Using AI-driven dynamic pricing, Flipkart rolled out: ✅ Tiered discounts for loyal customers. ✅ AI-powered coupon recommendations. ✅ Targeted email campaigns promoting small, time-sensitive discounts. 📈 Results: After three months of testing, Flipkart saw: ✔️ 17% increase in repeat purchases ✔️ 12% uplift in customer retention ✔️ Higher profit margins vs. deep discounting 🎯 Key Takeaway: In an inflationary environment, data-driven pricing isn't just about maximizing revenue—it’s about customer psychology. Businesses that personalize their offers and optimize discounts intelligently can boost retention while protecting margins. 𝑾𝒉𝒂𝒕 𝒑𝒓𝒊𝒄𝒊𝒏𝒈 𝒔𝒕𝒓𝒂𝒕𝒆𝒈𝒊𝒆𝒔 𝒉𝒂𝒗𝒆 𝒘𝒐𝒓𝒌𝒆𝒅 𝒇𝒐𝒓 𝒚𝒐𝒖𝒓 𝒃𝒖𝒔𝒊𝒏𝒆𝒔𝒔 𝒊𝒏 𝒄𝒉𝒂𝒍𝒍𝒆𝒏𝒈𝒊𝒏𝒈 𝒕𝒊𝒎𝒆𝒔? #datadrivendecisionmaking #DataAnalytics #DiscountStrategy #BusinessStrategies

Discounts kill growth. Don't do it! Whether it's 2nd chance offers in-product or seasonal discounts via CRM, running discounts is often presented as a must-have (and by some even as a silver-bullet). But the truth is, in many cases, it's a distraction and/or can actually hurt your bottom line. Here's why (make sure you check out the #growthgems 💎 in the carousel) 𝟭. 𝗜𝘁 𝗱𝗲𝘃𝗮𝗹𝘂𝗲𝘀 𝘆𝗼𝘂𝗿 𝗯𝗿𝗮𝗻𝗱 With subscriptions, you're building an ongoing relationship with customers. Repeated or deep discounts “cheapen” your brand: users start questioning the true value of what you’re offering. 𝟮. 𝗜𝘁 𝗱𝗲𝗰𝗿𝗲𝗮𝘀𝗲𝘀 𝗟𝗧𝗩 LTV suffers when an app depends on regular promos or discounts to catch a user early in the journey (i.e., before the natural conversion curve flattens). A portion of users who would have purchased full price (at least at one point) end up purchasing at a discounted price. 𝟯. 𝗜𝘁 𝘁𝗿𝗮𝗶𝗻𝘀 𝘂𝘀𝗲𝗿𝘀 𝘁𝗼 𝘄𝗮𝗶𝘁 Some users are just looking around but are not ready to commit. When you show them multiple discounts one after the other, that’s what they expect moving forward. It’s as if you had priced too low to begin with. 𝟰. 𝗣𝗿𝗶𝗰𝗲 𝗶𝘀 𝗻𝗼𝘁 𝘁𝗵𝗲 𝗿𝗲𝗮𝗹 𝗽𝗿𝗼𝗯𝗹𝗲𝗺 The “price” problem with conversion or churn is often more of a “perceived value” problem. In many cases, your time is better spent working on increasing the perceived value of your product. 𝟱. 𝗜𝘁’𝘀 𝗯𝗲𝘀𝘁 𝘁𝗼 𝗶𝗻𝗰𝗿𝗲𝗮𝘀𝗲 𝘁𝗵𝗲 𝗱𝗲𝗮𝗹 𝘃𝗮𝗹𝘂𝗲 Promotions  ≠ discount. Try offering an extended free trial (or a free trial if your main paywall is purchase only), a shorter subscription duration, or event a complementary product or perk. 𝟲. 𝗔𝗿𝗲 𝘆𝗼𝘂 𝘀𝘂𝗿𝗲 𝘆𝗼𝘂’𝗿𝗲 𝗽𝗿𝗶𝗰𝗲𝗱 𝗰𝗼𝗿𝗿𝗲𝗰𝘁𝗹𝘆? If you haven’t done proper price testing, don’t yet have annual renewal data and LTV projections you’re confident in, you shouldn’t start discounting. First, find a solid pricing baseline and understand your LTV. 𝟳. 𝗜𝘁 𝗱𝗶𝘀𝘁𝗿𝗮𝗰𝘁𝘀 𝗳𝗿𝗼𝗺 𝗳𝗼𝗰𝘂𝘀𝗶𝗻𝗴 𝗼𝗻 𝘄𝗵𝗮𝘁 𝗺𝗮𝘁𝘁𝗲𝗿𝘀 Everybody loves a quick win…But it’s not worth it if it distracts you from focusing on bigger levers like onboarding, paywall messaging/subscription mix, and activation (for free or paid users). I'm reaching character count limit for the post...But in the carousel, I also detail that: 𝟴. 𝗔 𝗴𝗼𝗼𝗱 𝗱𝗶𝘀𝗰𝗼𝘂𝗻𝘁𝗶𝗻𝗴 𝘀𝘁𝗿𝗮𝘁𝗲𝗴𝘆 𝗿𝗲𝗾𝘂𝗶𝗿𝗲𝘀 𝘁𝗶𝗺𝗲 𝗮𝗻𝗱 𝗺𝗼𝗻𝗲𝘆 𝟵. 𝗜𝘁 𝗰𝗼𝗺𝗽𝗹𝗶𝗰𝗮𝘁𝗲 𝗮𝗻𝗮𝗹𝘆𝘁𝗶𝗰𝘀 𝟭𝟬. 𝗜𝘁 𝗱𝗶𝘀𝗿𝘂𝗽𝘁𝘀 𝘁𝗵𝗲 𝗲𝘃𝗲𝗻𝘁 𝘀𝗶𝗴𝗻𝗮𝗹 𝘆𝗼𝘂 𝘀𝗲𝗻𝗱 𝗯𝗮𝗰𝗸 𝘁𝗼 𝗻𝗲𝘁𝘄𝗼𝗿𝗸𝘀 Agree? Disagree? What am I missing? Stay tuned for more on the topic...

Influencer Mgr: If we don't increase their discount codes, our influencers will leave. New CMO: That's the exact conversation happening in our customers' heads too. Influencer Mgr: What do you mean? CMO: They're both saying: "No bigger discount, no vibe." Influencer Mgr: But discount codes drive sales! CMO: What's the 12-month margin on discount-acquired customers? Influencer Mgr: I... don't know that number. CMO: How about contribution dollars from branded search traffic? Influencer Mgr: We don't track that. CMO: We do now. Main character energy, it is not. Influencer Mgr: We track revenue growth. That's what matters. CMO: What's the easiest way to grow revenue? Influencer Mgr: I'm not sure... CMO: Discounts. The marketing equivalent of fast food. Influencer Mgr: Previous CMO increased codes from 10% to 25%. CMO: And our margins dropped 15 points. Big yikes energy. Influencer Mgr: But we're still growing revenue! CMO: With 30% fixed costs, we're in flop era. Influencer Mgr: So what's the real problem? CMO: We're trapped in a discount doom loop. Influencer Mgr: What's the alternative? CMO: Build a brand people want without the discount crutch. Influencer Mgr: Sounds like core memories can't be bought. CMO: Exactly. We call it the Discount Detox. Influencer Mgr: How long will this take? CMO: It's giving evolution, not revolution. Think months, not years. Influencer Mgr: So we'll still use some discounts? CMO: The withdrawal symptoms won't kill us. The addiction will. Influencer Mgr: What's the success metric? CMO: Branded search, direct, and organic social growing faster than ad revenue. Influencer Mgr: This still feels risky. CMO: The riskiest move is staying on this hamster wheel of doom. Influencer Mgr: Will this actually work? CMO: Every iconic brand broke this same cycle. It's just math. Influencer Mgr: This is terrifying. CMO: That's how you know it's worth doing. Influencer Mgr: If this works... CMO: We'll be living rent-free in customers' heads instead of paying for every visit.