When should you lower prices?
At a glance:
Discounts have their place when used appropriately and carefully. Not only is there a fine line between smart discounting and value-eroding habits, but you can frequently achieve your discounting goals through means that don’t threaten to set negative price expectations.
WHAT IT IS
Promos and discounts are temporary price drops or incentives meant to achieve a specific goal: clear inventory, spark trial, smooth seasonality, or reward certain behavior. Structural cuts are permanent changes to your base pricing. Both move the number on the tag, but promos should be time-bound and purposeful; structural cuts quietly redraw the long-term value line of your business.
WHY IT MATTERS
Used well, promos are a scalpel: They help you move stock, bring in price-sensitive customers, and test demand without rewriting your whole price architecture. Used poorly, they’re a sledgehammer: They erode margins, reset reference pieces lower, and can trigger price wars you can’t win (nobody can). Structural cuts are even higher-stakes. Once you move list price down, it’s very hard to move it back up without backlash. Being deliberate here is the difference between a healthy promotional rhythm and training your customers to never buy at full price.
CASE FILE
Target: Everyday Cuts (Not Coupons) – Re-earning the Value Image
"We know consumers are feeling pressured to make the most of their budget, and Target is here to help them save more."
– Rick Gomez, executive vice president and chief food, essentials and beauty officer, (May 2024 statement)
Setup. In 2024, softening traffic due to continued inflation made shoppers start price-checking essentials, frequently trading down to less expensive brands or storefronts. Target needed traffic recovery without cheapening the brand.
Move. To counter the growing barrier to the weekly “fill-the-cart” job, Target announced everyday price reductions on ~5,000 high-frequency, price-sensitive SKUs (groceries, baby items, paper goods). They started the structural roll-out over the summer and then extended the strategy into the holidays (ultimately lowering prices on 10,000+ items in 2024).
Outcome. Target reset the value image where it matters (in essentials) and narrowed the perceived gap with Walmart while protecting margin via mix (owned brands vs. private label) – a longer-term fix than promo spikes.
Lessons.
Diagnose price-sensitive segments. Start with basket anchors. If these items feel high, the whole store feels high. That’s where they lowered first to unlock the weekly cart.
If your “value image” is broken, go for structural cuts over short-term promos. Recognize that permanent shelf price moves rebuilt trust where promos and coupons don’t. Target framed its lowered prices as everyday price drops, not deals to rebuild trust.
Guard margin by avoiding a race-to-the-bottom. For Target, this meant using their private-label depth (dealworthy, up&up, Good & Gather) and category selection to offset the cuts instead of slashing across the board.
Framework:
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Discounts and promos can quickly start to feel scattershot and desperate (not to mention erode value with the customer) if they don’t have clear, specific, time- or stock-bound objectives. Good reasons to discount include clearing out excess inventory, seasonal promotions to attract price-sensitive segments, or introductory offers to entice a trial (there’s a but to all of these, discussed below).
Takeaway: Define the goal and tailor the discount accordingly to make sure it doesn’t become a race to the bottom.
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When do you discount? If you’re a luxury brand, the answer might be never. If you’re going to discount, though, do you do it at launch? When things have matured/ How long can you go with something being in market before having to do something to induce someone to buy it?
Takeaway: Across-the-board or perpetual discounts or promotions should always be no-gos (you’re training customers to expect lower prices and damaging your brand equity – a constant BOGO is just masking price). Typically, you want to have a sequential discounting schedule that gives the steepest discount when you’ve sold most of the stock.
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We’ll talk more on price wars later, but know that competing on discounts can quickly spiral into destructive, no-win cycles. Yes, you can protect volume in the short term, but you’re also creating downward price pressure and eroding profitability for all players.
Takeaway: Before responding to price cuts with price cuts, consider instead optimizing for something that’s made your customers loyal in the first place, like quality or service, to maintain your pricing integrity.
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The dangers of across the board discounts are real, but there are techniques that can structure discounts smartly. Consider discounts for specific products or customer segments to keep them targeted, flash sales or holiday specials to create urgency while maintaining the reference price, volume/bundle discounts to encourage higher overall spend, or conditional discounts for volume, etc.
Takeaway: Bring some creativity to your discount structures to reward behavior without simply giving money away.
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The biggest problem with over-relying on discounts is that they can reset customers’ reference price lower. Because customers develop reference prices based on what they’re used to paying, if price is consistently moving downward, they may continue to hold off, expecting further drops (i.e., discount addiction). Eventually, you may end up with customers who are unwilling to ever pay full price.
Takeaway: Use markdowns occasionally to keep full price credibility and ensure that consumers continue to value a discount.
OPERATOR CHECKLIST
◻️ Every promo has a written Goal → Mechanism → KPI → End date.
◻️ We’ve fenced our discount levers by segment, channel, product line, or time window.
◻️ “No-promo” SKUs or services are explicitly defined (core margin builders and flagship offerings).
◻️ We’re monitoring reference price health (share of volume sold at full price; % of customers buying only on deal).
◻️ Structural cuts are rare, board-level decisions, supported by value positioning and cost math.
◻️ Post-mortems are standard: for major promos, we review incremental volume, gross profit, and halo (attach/basket) vs. a baseline.
◻️ Our Sales and CS teams have scripts explaining why a promo exists and when it ends – no “we’re always running something” vagueness.
SIGNAL TO WATCH
You may have a problem if:
A growing share of revenue only comes in when there’s a promo running.
“Full price” feels theoretical or most customers can quote your deal, not your list.
Competitor discounting is driving your calendar more than your own strategy.
Your team can’t clearly articulate what the goal of a discount is – or whether or not you hit it.
ONE QUICK ACTION
Pull the last 6-12 months of promos and discounts and put three labels on each: Goal, Mechanism, Outcome. If you can’t clearly name all three, or if the outcome doesn’t justify the margin hit, flag that promo as “sunset unless proven otherwise.” Kill at least one recurring or automatic discount and replace it with a single, tightly scoped offer that’s time-bound and explicitly tied to a specific objective (e.g., “clear X product line by quarter-end” or “convert Y% of first-time buyers to second purchase”).
COMMON TRAPS
Promo creep. What was meant as a one-off incentive turns into a standing “limited-time” offer that never really ends.
Blunt instruments. Site-wide percentage discounts that subsidize inelastic buyers and high-margin SKUs that would have sold anyway.
No exit plan. Intro pricing with no clear end date or conditions, so the discounted price becomes the de facto list.
Competitor-led calendars. Reacting to every rival move instead of running your own seasonal rhythm and objectives.
Ignoring reference prices. Treating each promo as isolated instead of recognizing the cumulative effect on what “feels fair” to customers.
Measuring only top-line. Declaring success on revenue lift without checking incremental gross profit, attach, or post-promo dips.
Experiment:
DECISION SHEET: PROMOS VS. STRUCTURAL CUTS
What it’s for: Decide whether a pricing move is a temporary, fenced promo or a permanent structural cut, and design it so you hit the objective without training customers to wait for discounts.
Who it’s for: GM/Owner + Sales/Marketing + Finance/Ops who approve promos or price changes and need a repeatable, margin-aware decision process.
What it does: Makes promo vs. structural decisions explicit, measurable, and reversible — before you launch.
Use when you need…
Clarity: Forces a clean distinction between temporary promos and permanent price damage.
Speed: Produces a launch-ready plan (objective, fence, guardrails) in one sitting.
Strategic insight: The post-mortem closes the loop so pricing decisions improve over time.
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