Perth, May 21: Retail brands relying heavily on discounts are damaging long-term growth and profitability, according to a new report by marketing effectiveness expert James Hurman and customer relationship platform Klaviyo.
The report, Sugar High! The Sour Truth About the Real Cost of Discounting, analysed thousands of global retail brands alongside 176 Australian e-commerce businesses and found brands with the highest discount rates consistently posted the weakest growth and profit margins.
The research found low discounters grew gross merchandise value (GMV) by 12 per cent year-on-year, compared with just 6 per cent for deep discounters, while the profit margin gap between the two groups reached 19 percentage points.
The report also found 70 per cent of all discount events generated negative contribution profit, rising to 90 per cent among brands that discounted most aggressively.
Researchers said most discounted purchases were driven by existing customers rather than new buyers, with 68 per cent of discounted orders placed by returning customers who likely would have paid full price anyway.
“When you discount, brands end up selling their best products to their existing customers for less than they would have paid, pulling forward future revenue they’d otherwise have earned at full price. In other words, they’re not attracting new customers, they’re bribing existing ones,” said James Hurman, founding partner of Previously Unavailable and co-founder of Tracksuit.
The report found topline revenue dropped an average of 27 per cent in the weeks following a sale period, suggesting many retailers were borrowing demand from future weeks rather than generating sustainable growth.
Klaviyo senior APAC director of customer success Nicole Birbas warned brands had become too reliant on discount-driven sales.
“Discounting is a measurement problem. It produces immediate results on a nice dashboard in terms of conversion and revenue. But the damage, meanwhile, accrues slowly and quietly in brand equity, margin compression, and in the steady recruitment of deal-seeking customers who will never pay full price again.”
The report also warned that the rise of AI-powered shopping may make excessive discounting even riskier long term, as AI systems increasingly favour trusted brands with stronger pricing consistency and reputation signals.
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