Retailers that rely heavily on discounting to attract sales are unequivocally damaging their long-term growth and profitability, according to a new study by marketing effectiveness expert James Hurman and marketing automation company Klaviyo.

The study, ‘Sugar high! The sour truth about the real cost of discounting’ suggests that the brands that offer the highest discount rates post the lowest growth rates. The pattern is said to hold across every price point, with depth and frequency of discounting correlating with profit decline.

“Brands with the lowest discount rates grow the fastest in terms of gross merchandise value,” says the researchers. “Their annual growth rates are slightly higher than moderate discounters, and 50% higher than deep discounters.”

Digging further into the data, the report finds that when brands discount, they disproportionately drive existing loyal customers to buy, not new ones, and the inventory that moves is overwhelmingly best sellers and core range. In the two to four weeks after a discount period ends, topline revenue falls by an average of 27%.

Mr Hurman, founding partner of Previously Unavailable and co-founder of Tracksuit, says: “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.”

The discounting “addiction” has become so intense with marketers that most struggle to wean themselves off, the report argues. Brands that decrease discount rates only grow at 4.8% compared to the 10.1% growth seen by brands that keep discounting rates the same.

“Discounting is a measurement problem. It produces immediate results on a nice dashboard in terms of conversion and revenue,” says Klaviyo Senior APAC Director of Customer Success Nicole Birbas.

“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.

“As the data shows, going cold turkey is not easy. My advice is to taper off the sugar high. Slowly reduce discounting and gradually retrain customers to buy from you at full price or at lower levels of discounting, as opposed to waiting for big sale events to purchase.”