Summary
Discounting can look like an easy way to win volume, close a deal, or create a short-term lift in sales. But the real cost often appears later: weaker net prices, lower customer lifetime value, damaged channel relevance, and internal benchmarks that are difficult to change.
In this episode of The Pricing Guys, Michael and Avy examine why discounts become habits—and what pricing teams can do instead.
Key takeaways
- A higher list price does not mean much if discounts are giving the increase back.
- Net price is the number that matters, yet many businesses do not track it clearly.
- Discounts can train customers to wait for promotions or refuse to pay the regular price.
- In B2B, every discount can become an internal benchmark for future deals.
- A discount should come with a clear trade-off, such as more volume, a longer contract, or better payment terms.
- Value-adds are often a better alternative to simply reducing price.
The hidden cost behind a discount
Many companies talk about taking regular price increases. Then the financial results come in, and the actual improvement is much smaller than expected. Why? The business gave part of the increase back through higher discounts.
This is one of the first issues Revenue Management Labs sees in pricing work. Teams may be focused on the published price, while customers are paying something very different after promotions, rebates, concessions, and deal-specific reductions.
That final number is the net price, and it should be central to pricing decisions. In industries such as consumer goods and airlines, net pricing is often more visible. In software and other complex B2B businesses, multiple tiers, bundles, user counts, and negotiated terms can make it hard to understand what a customer is truly paying.
Without that visibility, a company can believe it is improving price while quietly giving away margin through discounting.
Discounting can become a habit
Discounts often produce a quick result. A deal closes. Volume rises. A promotion creates a noticeable lift. That success can make the discount feel like the reason performance improved.
The problem starts when the business expects the same lift again. A promotion that worked last year must be repeated. Then it needs to be larger, broader, or more frequent. Eventually, the organization is trying to “lap” the previous result with even more discounting.
This creates a cycle:
- A discount generates short-term volume.
- The result becomes part of the performance baseline.
- The company needs another lift to meet its targets.
- A larger discount is used to create that lift.
- Customers and internal teams begin to expect the lower price.
What looks like commercial momentum may actually be margin being spent to maintain the appearance of growth.
What B2C promotions teach customers
A simple battery promotion illustrates the issue. A drugstore may offer a deep discount and report a strong increase in sales. On paper, that may look like a successful promotion.
But the customer may have bought the batteries only because of an urgent need. The discount did not necessarily change the purchase decision. It simply reduced the revenue collected from a customer who was likely to buy anyway.
There is another problem. If the regular price seems inflated and promotions appear often, shoppers learn to wait for a red sale tag. They may also start viewing the store as a place to visit only when something is on promotion.
That can hurt several areas at once:
- Customer lifetime value
- Brand perception
- Full-price conversion
- Store and channel relevance
- Competitive positioning
Channel strategy matters here. A drugstore may not be able to compete with an online retailer on everyday price or selection. Discounting does not solve that structural gap. It may simply make the channel less profitable while teaching customers to question its regular prices.
The B2B discount trap
B2B discounting can seem safer because negotiated prices are often less visible to the broader market. Customers may not know what other accounts are paying. That does not make the practice harmless.
In B2B, the most important benchmark may be the one set inside the company. Once a sales team closes a large contract at a low price, that deal becomes a reference point for future negotiations. The next salesperson may hear, “We did it at that price before,” even if the circumstances were completely different.
The risk is especially high for software and services. If a product is priced at $100 per seat but a customer receives a 30% discount, the renewal conversation may be anchored at $70. The customer now sees that amount as the value of the offer, not as a one-time concession.
Changing that benchmark later requires a strong explanation and may create unnecessary friction with the customer.
Every discount should have a trade-off
A discount can make sense when the business receives something valuable in return. The key is to define that trade-off before the discount is approved.
Possible exchanges include:
| Customer commitment | Potential pricing consideration |
|---|---|
| Larger volume | Volume-based pricing with clear thresholds |
| Longer contract term | A measured reduction tied to commitment |
| Faster payment | Terms-based concession with a defined benefit |
| Exclusivity | Pricing that reflects the strategic value |
| Expanded scope | A structured package rather than a lower unit price |
The discount should support a clear commercial objective. It should not be a default response to sales pressure or an old agreement that nobody has reviewed in years.
Revenue Management Labs helps companies assess these decisions in the context of their market, customer segments, data, and sales process. AI can help identify pricing patterns and unusual discount behavior, but experienced pricing judgment is still needed to determine what the discount is actually buying.
Better alternatives to cutting price
Before reducing price, teams should ask whether they can add value instead. In software, that might mean additional seats, features, onboarding support, or a broader package. In other industries, it could mean service enhancements, delivery options, training, or a carefully designed bundle.
The right alternative depends on the customer and the business model. There is no universal fix. The practical goal is to preserve the value of the core offer while giving the customer a reason to move forward.
A strong pricing strategy connects analysis with execution. Sales teams need clear guardrails, leaders need visibility into net price, and exceptions need to be reviewed based on measurable outcomes.
Breaking the cycle
Discounting is not always wrong. Uncontrolled discounting is. Companies need to know when a reduction is creating profitable growth and when it is simply moving revenue forward at the expense of margin and future price expectations.
The first step is to look beyond list price. Understand net price by customer, product, segment, channel, and salesperson. Then review whether each discount is tied to a real trade-off.
Most importantly, do not confuse a temporary sales lift with lasting value. Thoughtful pricing, supported by practical implementation, gives companies a better chance of growing without training customers—and internal teams—to expect a lower price every time.
