Why Discounts Destroy Long-Term Profitability
Discounts are one of the most tempting tools in business. When sales slow down or competition increases, lowering prices can feel like a fast, practical solution. In the short term, discounts often do drive traffic. But history shows that relying on discounts as a strategy almost always damages profitability, brand perception, and long-term growth.
Several major retailers learned this lesson publicly—and expensively.
The Illusion of Growth Through Discounts
Discounts often boost revenue temporarily, but revenue alone does not equal success. When margins shrink, businesses must sell far more just to maintain the same profit level. This creates a cycle of volume dependency: more sales, more operational strain, and less financial flexibility.
Retailers that leaned too heavily into this model saw short-term spikes followed by long-term erosion.
Case Study: J.C. Penney
For decades, J.C. Penney trained customers to expect constant discounts—coupons, clearance sales, and promotional pricing became the norm. Shoppers stopped buying at full price altogether.
In 2012, the company attempted a radical shift by eliminating discounts and moving to “everyday low pricing.” The problem wasn’t the strategy—it was customer conditioning. Years of discount dependency meant customers no longer trusted full prices, even when they were fair. Sales collapsed, and the company reversed course, but the damage was already done.
The lesson: once customers are trained to wait for discounts, it’s extremely difficult to reset expectations.
Case Study: Gap Inc.
Gap relied heavily on promotions throughout the 2000s and 2010s. Regular discounts became a core part of its sales strategy, but over time, this weakened the brand’s identity and pricing power.
Customers stopped viewing Gap as a premium casual brand and instead saw it as a discount retailer. Even as traffic increased during promotions, profitability declined, inventory piled up, and long-term brand loyalty eroded.
Gap’s leadership later acknowledged that over-promotion hurt margins and trained customers to avoid full-price purchases.
Case Study: Kohl's
Kohl’s became famous for perpetual discounts—stackable coupons, markdowns, and “limited-time” sales that were always available. While this strategy drove foot traffic, it also created an environment where no one believed the original price was real.
As competition increased and e-commerce grew, Kohl’s struggled to maintain margins. Shoppers expected constant deals, making it nearly impossible to raise prices without backlash.
This highlights a core truth: discounting replaces value perception with price dependency.
Discounts Change Customer Behavior—Not Just Revenue
Across these examples, the pattern is clear:
Customers delay purchases
Price becomes the primary decision factor
Brand loyalty weakens
Profitability becomes volatile
Discounts don’t just reduce margins—they reshape how customers think, often in ways that permanently harm the business.
Discounts Limit Investment and Innovation
When margins decline, businesses have less capital to:
Invest in talent
Improve systems
Enhance customer experience
Innovate products or services
Many retailers caught in discount cycles responded by cutting costs, which further weakened differentiation and accelerated decline. This is how discounting quietly shifts businesses from growth mode into survival mode.
When Discounts Make Strategic Sense
Discounts are not inherently bad—but they must be intentional and temporary.
They can make sense when:
Clearing obsolete or seasonal inventory
Entering a new market with a defined exit strategy
Rewarding loyalty (not attracting one-time bargain hunters)
They become dangerous when:
Used regularly to close deals
Applied broadly without segmentation
Driven by fear of losing customers
Used instead of fixing pricing or value communication
The Better Alternative: Value-Based Pricing
The retailers that have remained strong long-term focus less on discounts and more on:
Clear brand positioning
Consistent pricing
Differentiated value
Customer experience
For service-based businesses, this lesson is even more critical. Expertise, outcomes, and trust cannot be discounted without consequence.
Discounts feel helpful in the moment—but history shows they often destroy long-term profitability, weaken brand equity, and trap businesses in unsustainable cycles.
The companies that survive and grow aren’t the cheapest. They’re the clearest about the value they deliver and confident enough to price accordingly.
If your business feels busy but profits are thin, the issue may not be demand—it may be discounting.