Authors: Sudipto Banerjee and Serena Crivellaro

Companies facing falling demand—for individual products or across portfolios—typically think about increasing discounts and promotions to reinvigorate sales. This is a natural reaction, especially in an economic downturn, like the one unfolding in 2020. But when discount programs are not carefully crafted, the intended sales lift does not occur. In this paper, we outline six key considerations for sales and marketing executives and C-suite leaders when planning and executing discounts. With these considerations in mind, companies can respond to the current demand challenge, while minimizing the risk of unintended consequences. Sudipto Banerjee ( is Principal and Pricing & Commercial Excellence Leader at KPMG. Serena Crivellaro ( is a Managing Director specializing in optimizing pricing, sales and marketing strategies.

The Journal of Professional Pricing, December 2020


Companies facing falling demand—for individual products or across portfolios—typically think about increasing discounts and promotions to reinvigorate sales. This is a natural reaction, especially in an economic downturn, like the one unfolding in 2020. Consumers are cutting back[1] and are looking for lower prices. Sales people want to be able to offer discounts to match competitors, save a deal, or demonstrate goodwill to customers during a time of stress.

But when discount programs are not carefully crafted, the intended sales lift does not occur. Worse, discounts can wind up doing more harm than good—sparking price wars and inflicting long-term damage to brands, for example.

In our paper Pricing strategy: foresight is 20/20,[2] we discussed how the present economic situation has forced executives to make complex pricing strategy decisions. In this paper, we outline six key considerations for sales and marketing executives and C-suite leaders when planning and executing discounts. With these considerations in mind, companies can respond to the current demand challenge while minimizing the risk of unintended consequences. This updated approach is also designed to help leaders in both consumer and B2B markets meet the long-term challenges of the “new reality” created by the COVID-19 shock.

Six Considerations for Successful Discounting

In any environment, discounting with discipline helps companies ensure that discounts are clearly defined and designed to meet specific goals. The six considerations we present here represent an approach to discounting with discipline for today’s markets. Three considerations—Strategy, Structure, and Communications—are internal factors. Three others—Market Expectations, Effects, and Lookbacks—relate to external factors, which cannot be directly influenced by companies. These external factors are extremely important, but often are an afterthought or overlooked entirely. The most important considerations are Structure and Effects and these should receive disproportionately more thought and attention (Exhibit 1). However, it is important to use all six considerations.

Exhibit 1 – Six considerations: Pay particular attention to structure and effects

Pricing Discounting with Discipline

1. Based on an Informed Strategy

Leading companies develop a discounting strategy by clearly defining objectives–what will the discounts achieve? All too often, a discount plan is launched in a rush in reaction to a move by a competitor. That may be a necessity: to stay in business and remain competitive, a company may need to match the market discounting norm. However, we find that the most effective discount plans have a clear objective, against which results can be measured.

Typical strategic objectives include:

  • Acquire new customers
  • Increase sales volume and/or market share
  • Retain customers who suddenly have limited spending power
  • Liquidate inventory, particularly of perishable, expiring or seasonal goods
  • To stay in business and match a market discounting norm

Companies also use discounts for narrower objectives such as information gathering (e.g., discounts to sign up for an account), grassroots marketing (referral discounts), or managing product assortment (steering volume across SKUs).

During COVID-19 we have seen many companies use discounts to sustain customer relationships. SiriusXM offered free streaming through mid-May to keep customers.[3] HBO created the “Stay Home Box Office” offer to bring in new customers. The offer, which ran through April, included free access to some of the most popular shows and was aimed at enlisting customers in HBO MAX.[4] Some discount strategies during the COVID-19 lockdown were aimed at helping cash flow—offering discounts for customers who paid in advance for post-lockdown restaurant meals and hair appointments, for example.

2. Consistent with Market Expectations

Discounts should also line up with market expectations. Customers, suppliers and competitors have certain expectations—mental models—for a brand. Sharp deviations from that model can be alarming. For example, if a company known for consistent pricing suddenly offers steep discounts, it can raise customer concerns about quality, signal potential cash limitations to suppliers, or suggest vulnerability to competitors. A classic example was JC Penney’s bet on “everyday low prices”—an attempt to move away from the constant promotions that department stores use to stimulate sales. Instead of embracing the simplified pricing approach, shoppers were confused and the company abandoned the idea.[5]

3. Carefully Structured

There are many ways to offer discounts, which vary across industries. In B2B, volume discounts are common. In consumer, bundles, BOGO (buy one, get one), loyalty programs and simple price promotions are widely used. In general, companies should stick with the discounting tactics that have worked in the past and that the market expects.

We identify three ways of structuring discount programs:

Fencing: Bounding discounts by time or quantity helps provide the psychological trigger of scarcity (e.g., next month this deal won’t be available). Online retailers have taken time-bound offers to a new level, flashing “pop-up” discount offers that are valid for minutes or hours. Fencing can also be about customer or product. Henry Schein, a dental supplies distributor, began offering discounts in March 2020, as business was slowing because of COVID-19.[6] But the offers were limited to smaller groups and independent offices, and focused on Schein’s private-label products. Additional fencing dimensions include age and location. A note of caution on fencing: the offer should be carefully crafted to avoid anti-competitive or discriminatory pricing regulations.[7]

Quid pro quo: It is critical to think through the “gives and gets” of discounting scenarios. When a B2B vendor offers a year-end rebate to its best customers, the quid pro quo is clear. But many companies fail to build explicit reciprocity into discounting. Without that, customers will feel they are getting something for nothing, which resets their expectations of fair pricing for the product or service. Common examples of reciprocity in consumer markets include discounts for longer term subscriptions, last season’s items, or higher volume purchases and bundles. The economic downturn has generated some creative uses of quid pro quo. Hotels and airlines, for example, offered home-bound travelers prepaid gift cards that are redeemable for higher values in the future—the consumer pays now and gets a steep discount in the future.[8]

Stacking: Behavioral economics tell us that stacking—applying a second discount on top of an initial discount—is a powerful lure. When shoppers see a 30 percent discount on an item that was already marked down by 20 percent, they believe that they are getting a better deal than a straight 50 percent discount.[9] In reality, they’re getting less because the 30 percent is applied to 80 percent of the original price, not 100 percent. The lesson is that companies can increase willingness to buy by offering a series of discounts. Furthermore, researchers have found that the order of discounts matters: going from smaller to larger makes the second discount feel more generous. Certain major apparel retailers have long practiced this approach. Stacking is very common in Asia, but relatively new in the rest of the world.

It pays to put sufficient effort into getting the structure of the discount right. The choice of structure should be tailored to individual customer needs and product characteristics, and may look different across business units, product lines, or customer segments. Offers can embody multiple structuring approaches (see “Combining fencing and quid pro quo in one offer”). However, companies choose to structure discount offers, they should be based on awareness of external factors and an assessment of potential adverse effects.

Combining fencing and quid pro quo in one offer

Hubspot, a CRM software provider, is offering reduced pricing on small business solutions for 12 months.10 The value of this offer—a discounted price for the basic bundle and free access to additional features for 90 days—is clearly communicated and reiterated at various points in the purchase process. This is effective fencing: focused on a specific type of customer (small business) and limited availability (12 months). The 12-month commitment is also an example of quid-pro-quo – lower pricing in exchange for a longer time commitment on the subscription.[10]

4. Designed to Avoid Adverse Effects

Effective discounters always review proposed discounts and price moves for adverse effects. What are the risks of cannibalization? How could the offer backfire with customers? Getting a definitive answer to these questions is not easy, but companies can model potential reactions to identify better and worse paths.

At a minimum, we recommend assessing any discount program through these three lenses:

Price war potential: Discounts in highly competitive industries can set off a chain of price cuts. Or a poorly considered discount can result in a price stalemate (when leading players converge around a temporarily lower price). In either case, customers will note the new price and may hold out for it in the future. Price wars can attract new customers to the market or bring forward future purchases, but these positive effects rarely outweigh the value destroyed.

Elasticity: Price elasticity is defined as the change in volume caused by a change in price. Discounts pay off when products are sufficiently elastic that the additional sales offset the investment in discounting. In extraordinary times, the breakeven threshold may be lowered, but the principle still holds: lower price must increase sales by raising demand among existing customers or by adding new ones. Elasticity is affected today by both the slow economy and the impact of COVID-19. It is doubtful, for example, that discounts on office apparel, dress shoes or travel gear can generate the sales to make them successful—the price elasticity for these items has changed because people are not going to offices or traveling.

Value destruction: Discounting can destroy value in many ways—cannibalizing sales of similar products, stealing future revenue, or eroding brand equity. Several apparel retailers, such as Rag & Bone[11], responded to slowing sales in early 2020 with generous discounts (20 percent to more than 40 percent). These discounts reset customer expectations of acceptable pricing, and by summer, the company wound up raising discounts, to 40 to 60 percent. This risks causing damage to brand perception and the ability to ever charge higher prices. Fencing can help limit value destruction. For example, several automakers created time-limited discounts or payment deferral offers for consumers who had lost jobs because of COVID-19. Those limitations reduced the risk of resetting price expectations and eroding brand value.

5. Underpinned by Effective Communications

To be effective, discounting communications must both entice customers to buy and reinforce value. In the pre-purchase phase, communications should highlight the value of the discount to spark customers’ desire and should employ behavioral economics. Researchers have found that that there is a “rule of 100.” If an item sells for $100 (or less), consumers are more likely to be motivated by a percentage off—20 percent off of a $50 item has more appeal than $10 off. But for a pricey item, like a $2,500 computer, promoting the dollar amount ($500 off) is more powerful.[12]

“Pay what you can” pricing is a sophisticated discounting communications mechanism that actually reinforces brand value. Used by companies such as Everlane, a women’s apparel retailer, and Noom[13], an online diet service, these offers present a choice of prices (representing different discounts levels) and indicate a recommended or most commonly selected price point. These offers ask the customer to assess what the product is worth to them. Additional messaging about fair pricing (“it costs us $xx to provide this trial, but pay what you think is fair!”) motivates customers to stop looking to score the “best deal” and settle on a higher price point that reflects brand value.

In B2B markets, price negotiations are all about communicating product benefits so the sales rep can offer a smaller discount than the customer requests. This works best when the rep focuses on what is most valuable to the specific customer. The definition of value will vary by B2B customer type. Procurement teams will be looking to demonstrate cost savings, while engineers will be more attuned to technical specs and post-sale support, etc. The most skilled negotiators use the most valued feature as leverage: I can get you that great price, but not with access to 24/7 technical support.

Post-purchase communications are also important in discount programs. The invoice or receipt should include messaging reinforcing the pre-discount price to prevent customers from anchoring on what they just paid. Similar principles apply to year-end rebates and loyalty program summaries, which should serve to remind the customer of the value of the deal and the enduring value of the brand.

6. Informed by Lookbacks

Especially in an economic downturn when cash flow is a concern, it is important to monitor pricing performance to fix problems and inform future moves. Running discount tests through a price management tool can help identify which actions are working, which are not, and how they are likely to perform across products, customer segments, and over time. Early lookbacks can help identify any potential challenges in time to course-correct.

By tracking performance at all steps of the purchase process, vendors can confirm how discounting drives incremental interest and sales or if additional communication or restructuring is needed. Companies that are most skilled in pricing track a number of discount-related metrics on an ongoing basis. These metrics include discount escalations, escalation-to-approval ratios, promotional effectiveness and net profit margins by product and customer.[14]

We also recommend monitoring customer sentiment via social media or via sales force outreach to understand how the discount is working. Is the offer really generating net new sales or is it cannibalizing future sales? What is happening to brand value perception? Are customers telling their friends and recruiting more buyers?


Given all this, where to start? What should companies do to implement effective discounts? The discounting consideration framework that we describe in this paper can also provide a roadmap for effective discount planning

  1. Create a plan: Begin by defining your desired outcomes—an informed strategy—and thinking through the market expectations, then understanding how these factors may bound the moves available to you. The plan should take into account market dynamics today, which might be different than they were pre-COVID-19. Will customers come flocking when you lower the price? Will competitors retaliate? How do the answers to these questions determine which discounting options are most appropriate for you?
  2. Define the core: This is when you determine the structure of the discount program that helps to achieve your desired outcome – and then play it forward by considering the possible effects. What are the financial and brand impacts? Use quantitative modeling and qualitative war gaming to refine and iterate the plan. What mechanisms can be used to reduce risk? What tools and data can help increase the likelihood of a favorable outcome?
  3. Follow through on execution: So many companies stop at Step 2. For successful discounting, companies must also develop the communications for all stakeholders—employees, customers (by segment), etc. to amplify the message and proactively mitigate potential sources of tension. Once the program launches, start conducting lookbacks to measure performance over time and across the entire portfolio. What pockets of discontent are likely to flare up? How are we managing the impact on discounted and un-discounted products? Close the loop by integrating any findings from lookbacks into strategy setting and reconsidering market expectations for the next round of discounts.

There are situations, especially in this unusual economic environment, where no discount structure can meet your desired objectives. In this cases, we recommend exploring other pricing options, which are described in some of our other recent papers.

  1. 1 KPMG, Consumer pulse survey report, COVID-19.
  2. 2 KPMG, Pricing strategy: foresight is 2020.
  3. Joe Concha, SiriusXM, “Howard Stern announce free access to streaming content through May 15,” The Hill, March 31, 2020.
  4. Eric Deggans, “These TV Services (And More) Are Offering Free Access,”, April 24, 2020.
  5. Jim Aisner, “What Went Wrong at J.C. Penney?,” Harvard Business Review, August 21, 2013.
  6. “Henry Schein offers ‘Recovery Pricing’ for dental professionals,” Dental Tribune USA, May 21, 2020
  7. 15 U.S. Code § 13.Discrimination in price, services, or facilities, Legal Information Institute,
  8. Andrea Sachs, “Hotels roll out new initiatives designed to boost reservations and cash flow,” Washington Post, May 6, 2020.
  9. Necati Ertekin, Jeffrey D. Shulman and Haipeng (Allan) Chen, “On the Profitability of Stacked Discounts: Identifying Revenue and Cost Effects of Discount Framing,” Marketing Science, April 4, 2019.
  10. How HubSpot Is Responding to COVID-19 and Its Economic Impact,
  11. 11 Refer to sales on
  12. Jonah Berger, Contagion: Why things catch on.
  13. Company websites
  14. See Three steps to pricing excellence, KPMG 2020.

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