How discounting hurts long-term loyalty and profits

Discounting has been part of retail’s toolkit for decades, and it can be effective, especially during high-stakes shopping seasons. But as promotions become more frequent across the industry, companies are taking a closer look at the downside: Short-term sales gains don’t always come with long-term loyalty or durable margins, and customers remember how a brand made them feel far more than what they saved at checkout.

What’s often missing from the conversation is the role of experience-led value. Loyalty isn’t built through price alone—it’s built through moments that make a customer feel recognized, appreciated, and confident they made the right choice. When brands compete only on discounts, they sacrifice those moments in favor of short-term volume.

This coming year, retailers may feel the urge to pull the markdown lever more than ever.

While the National Retail Federation pegged retail sales during the recent holiday shopping season to exceed $1 trillion, retailers saw fewer unit sales as shoppers dealt with tariff-driven sticker shock. As a result, 2025 marked a significant change in consumer behavior as shoppers across the board sought value and deals. That shift is likely to persist through 2026, increasing pressure on retailers to use markdowns to move inventory.

The risk isn’t that retailers will discount, it’s that discounting becomes the strategy rather than the symptom.

WHEN DISCOUNTS COST MORE THAN THEY DELIVER

Kohl’s offers a useful illustration of this tension. In the third quarter of 2025, the retailer reported a modest year-over-year increase in gross margin, while operating income declined amid softer sales. The results underscore how difficult it can be to translate promotional activity and operational improvements into sustained profitability when demand remains under pressure.

This dynamic isn’t unique to Kohl’s. Shifting consumer preferences, lingering supply-chain complexity, and intensified competition have forced many retail leaders to make difficult decisions about pricing and inventory.

Target faced a similar challenge in 2022, when excess inventory—particularly in home and apparel—prompted the company to take decisive markdown and inventory-reduction actions. While those moves helped rebalance inventory levels, they also weighed on near-term profitability.

More recently, Lululemon has contended with elevated promotional activity amid signs of slowing demand in the U.S. and increased competition in the athleisure category from brands like Vuori and Athleta. Analysts have pointed to higher markdown levels as retailers across the space work to maintain traffic and manage inventory in a more competitive environment.

Taken together, these examples reflect a broader pattern in retail: promotions can help stabilize revenue in the short term, but they don’t always improve operating leverage or long-term customer value. Discounts move inventory—but they rarely move customer lifetime value in the same direction.

WHY DISCOUNTING FEELS INEVITABLE BUT ISN’T SUSTAINABLE

Discounting has intuitive appeal. In a crowded market with shrinking discretionary budgets, deals cut through the noise. Spending trends underscore just how price-sensitive shoppers have become, with a growing percentage planning holiday-season purchases early and hunting for discounts across channels.

Yet this rush to save can produce a dangerous feedback loop:

1. Shoppers learn to wait for deals.

2. Brands feel pressured to offer deeper discounts.

3. Margins shrink, forcing even steeper promotions next cycle.

Over time, this turns what should be a preference decision into a pricing decision, and pricing decisions rarely build durable brands.

LOYALTY IS BUILT BEYOND THE TRANSACTION

If discounting tells a shopper, “Buy now because it’s cheap,” then true loyalty says, “Buy again because it matters.” The difference is subtle, but profound.

Loyalty isn’t a transaction with a strike price; it’s a series of experiences that make a customer feel recognized, appreciated, and connected. It doesn’t live at checkout. It’s built in the moments of fulfillment, engagement, and emotional connection that follow.

Yet many retail strategies still prioritize pre-purchase price incentives over post-purchase relationship building. That’s why promotions dominate inboxes, but customer lifetime value stagnates.

A BETTER PATH FORWARD

Some brands are finding a way out of this loop by shifting emphasis away from discounts and toward experience-led value. This includes deploying value-oriented pricing structures that don’t train customers to wait for sales. Retailers can also offer post-purchase experiences that reinforce brand affinity without discount hooks. They can also provide more personalized engagement that acknowledges the shopper as an individual rather than a deal seeker.

Retailers who embrace these strategies in 2026 signal something important: you matter to us, not just your wallet. And that distinction, over time, fuels repeat business in a way discounts never can.

Discounts will always have a place—especially during peak shopping seasons when consumer attention is fragmented and competitive pressure is intense. But when discounting becomes the foundation of a pricing strategy rather than a tactical lever, it eats into profits and inwardly rewires customer expectations.

The retailers that will win in 2026 and beyond won’t be the ones offering the biggest discounts. They’ll be the ones who understand how customers remember brands, through moments of appreciation, relevance, and experience that extend beyond the transaction.

As the past holiday season showed, even the most sophisticated retailers can fall into the trap of equating promotional volume with lasting value. The brands that win in the long run will resist that reflex—and instead focus on creating moments that customers remember, not just prices they respond to.

Elery Pfeffer is the CEO at Nift.