Is Discounting Bad For Business? The Negative Impact On Customer Loyalty & Sales

30-Second Summary:

  • Relying on frequent discounts can devalue your brand, encouraging customers to wait for sales instead of appreciating the true quality of your products, leading to reduced long-term loyalty and profitability.
  • Discounts may shift customer loyalty from the brand to the lowest price, particularly in competitive retail environments, undermining relationships and emotional connections essential for genuine loyalty.
  • Businesses should consider more sustainable strategies like loyalty programs, product bundling, and enhancing customer experiences to foster long-term customer relationships and brand value without depending solely on discounts.

Do discounts really pave the way to sales success, or could they actually be impacting your business? Discounts are a common tactic used to attract customers and boost sales, after all, who doesn’t like a discount and paying less for goods and services? While offering lower prices can provide an immediate surge in customer interest and purchases, this strategy may not always result in long-term business health.

Below we’ll look into why businesses offer discounts to customers in the first place and the hidden costs of doing this frequently, examining how it can erode customer loyalty and negatively impact sales over time rather than actually boost it. We’ll also look at how businesses can take a more strategic approach to pricing that might be more beneficial for sustainable growth.

Why Offer Discounts To Customers?

Discounts have an undeniable allure. We’ve all seen a discount online or in-store that catches the eye and influences what we then purchase, even if we didn’t plan to buy that particular item at the time. Enticing customers with the immediate satisfaction of saving money, discounts work.

However, the psychological effects of consistent discounting go beyond short-term consumer happiness. Frequent discounts can set a precedent, conditioning customers to wait for sales rather than purchasing at full price. In fact, a recent survey showed that 66% of Gen Z and 67% of Millennials worldwide are willing to wait for discounts before buying. This behaviour can dilute the perceived value of products, as customers begin to equate the brand’s worth with the lowest price they’ve paid rather than the quality or uniqueness of the items. You have to question, why buy something at full price now if you know a discount is just around the corner?

Repeated exposure to price reductions adjusts consumer expectations, making standard pricing less appealing and potentially leading to dissatisfaction when discounts are not available.

Impact Of Discounts For Customer Loyalty

If your business relies on providing reduced prices to drive purchases, it can undermine genuine brand loyalty, as customers’ attachment becomes tied to bargains instead of brand identity or product quality. A study by Capterra in 2023 found that due to the cost of living crisis, over 69% of UK shoppers who have seen price increases want their favourite companies to offer more discounts. This means if they don’t see them, then they will shop elsewhere rather than stay loyal.

Shoppers want to find the best deals of course, so if there are constant discounts to be found, it makes selling items at full price very difficult. When discounts are the main attraction, consumers may develop loyalty to the price rather than to the brand itself.

This is evident in industries where price competition is fierce, something many retail and eCommerce brands have to navigate. Customers often switch between brands based on who offers the best discount, rather than staying loyal to one company. This means customers lack a deeper emotional connection with a brand, something that is critical for true loyalty.

Why Discounting Is Bad For Business – Long-Term Sales

So, what happens long-term if brands offer consistent and frequent discounting? It can have a big impact on a business’s sales and profitability.

Initially, discounts may boost volume, but over time, this strategy can erode profit margins as customers grow accustomed to paying less. According to Harvard Business Review, discounts can quickly erode the average price for all customers, which will cause issues in the long-term.

Consistent discounting can lead to getting into a battle of prices among competitors, creating a “race to the bottom” where the only differentiator is price. This can discourage innovation and investment in other aspects of the business, such as product development or customer service, further affecting a brand’s unique market position.

Businesses might find themselves trapped in a cycle where each sales period requires steeper discounts to achieve previous results, ultimately impacting long-term financial stability and growth. If your customers get hooked on customer loyalty discounts, you face an uphill challenge to change their mindset. This is where more sustainable methods to help customer loyalty may be a better idea.

Are There Better Alternatives to Discounts?

If discounts for customer loyalty are not great in the long-term, what can businesses do instead? Rather than relying heavily on discounts as a strategy, there are alternative strategies to build customer loyalty and enhance sales without undermining your brand’s perceived value.

  • Loyalty Programs – Consider implementing loyalty programs that reward repeated purchases or exclusive memberships that offer special benefits.
  • Product bundling – This is another effective strategy that encourages customers to buy more by offering complementary products together at a slightly reduced price.
  • Superior Customer Service – Focusing on improving the overall customer experience (CX), such as through superior service or unique online store experiences, can differentiate a brand in a crowded market.
  • Exclusive Memberships – Offer memberships that provide early access to new products, special events, or additional savings.
  • Value-Added Services & Promotions – Include free delivery, extended warranties, or complimentary services to enhance product value rather than a discounted price.
  • Personalisation – Use customer data to tailor promotions and products, making offers more relevant and attractive.

These approaches not only promote customer retention but also enhance a brand’s reputation for quality and value. They help brands think differently about their pricing. Remember, customers aren’t just looking for cheaper prices, they also want better experiences. According to a study by PricewaterhouseCoopers (PwC), 73% of customers say experience is an important factor when purchasing, with 43% willing to pay more for greater convenience.

Discounting Is Good Sometimes, Just Not All The Time

While discounts can boost sales to begin with, and customers do like to see them, this is often at the cost of long-term customer loyalty and profitability. It’s a difficult balance to get right and with a difficult climate for consumer spending in general, customers do want more for their money. As mentioned, there are other ways to help provide more value and keep customers happy in the long term, none more so than offering unique and personalised customer experiences.

If you are looking at ways to improve the performance of your eCommerce website and provide a superior CX that will drive traffic in your direction, talk to our digital marketing agency today. We help brands boost organic visibility and performance, increasing sales and loyalty through award-winning SEO campaigns, website design and much more.

For more insights, please visit our blog, where you can discover more about the impact of Google’s Reviews update, and the important role of white space in web design.

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