PlayAbly Podcast Episode 49: The Discount Trap

Discounts might drive short-term sales, but they’re quietly killing your margins and eroding your brand’s value. In this episode of the PlayAbly Podcast, we unpack why discounting has become a business model (not a strategy), how it's creating promo-addicted customers, and what smarter brands are doing instead.

We’ll explore why flat discounts train people to wait, not buy — and how earned rewards and conditional incentives flip the script. From unlocking value through shoppable games to building VIP programs with integrity, this episode is a playbook for anyone who wants to drive conversion without destroying brand equity.

🎯 You’ll learn:

• The psychology behind discounts vs. earned value
• How to avoid the “promo treadmill”
• Why ecommerce gamification is outperforming flat promos
• How to use tools like ecommerce quizzes and chance-based rewards to drive deeper engagement
• What luxury brands can do without cheapening their image

If you're leading CRM marketing, retention marketing, or just want a more strategic approach to promotion — this episode is your new roadmap.

🔗 Explore more:

• Build your first branded game
  
  
• See case studies from top DTC brands
  
  

👉 Ready to ditch discounts and elevate your customer journey? Let’s play smarter.

Want to see what PlayAbly can do for you? From cool custom games to PlayAbly Gamified Rebates, we (probably) have a solution for your ecommerce shop woes. Book a meeting with the great and powerful John here.

Transcript

Welcome back to the PlayAbly podcast. Today we're talking about the quick fix and slow death called discounts. Discounts are like financial painkillers — quick relief, but they mask deeper problems. Today we’re talking about how the addiction to promotional pricing is quietly destroying brand value… and the psychology that might actually save brands from this downward spiral.

That analogy is painfully accurate — and the numbers make it even scarier. In some categories, promotions can drive up to ~50% of total sales volume, which means discounting isn’t a tactic anymore… it’s become the business model.

Exactly. And when discounting becomes your business model, your customers don’t learn “this brand is valuable”… they learn “this brand goes on sale.”

And it’s not just mass-market brands either. Even luxury is getting dragged into it. During key retail moments like Black Friday/Cyber Week, luxury labels have been reported to discount as high as 50%, with global averages around the high 20s.

Which is wild, because luxury is literally built on controlled availability and price integrity. The minute you normalize markdowns, you’re not just losing margin — you’re weakening the story.

Totally. And that’s why McKinsey’s pricing research is so interesting. They’ve found that using stronger analytics to link pricing + promotions can lift revenue and profits by 3–5 percentage points.

Okay but that’s the punchline everyone hears and goes, “Great, more promos.” What’s the part they miss?

They miss the part that promotions are expensive even when they “work.” Another McKinsey paper found CPG companies invest roughly 20% of revenue in trade promotions… and 59% of those promotions lose money globally — and it’s 72% in the U.S.

Wait — so the majority of promotions are literally unprofitable?

Yep. Which is why discounting feels like a cheat code… but it’s often a cheat code that’s charging you interest behind the scenes.

Okay, so let’s go deeper. What exactly are brands sacrificing beyond margin?

Alright — here are the hidden costs. First is what I call the “promo treadmill.” A skincare brand starts at 10% off. That feels safe. Then competitors offer 15%, so they match. Then 20% becomes normal. Now your customer sees full price and thinks: “That’s not the real price.”

So it’s like tolerance. The same discount stops producing the same conversion lift, so you need bigger and bigger doses.

Exactly. And you’re not just training customers to buy on sale — you’re training them to delay purchase. They learn: “If I wait 10 days, I’ll get rewarded.” That’s not a conversion strategy anymore — it’s a behavioral habit you’ve installed.

That’s such a big point. Brands think they’re doing a one-time campaign, but the customer experiences it as a pattern.

Yes. And the longer you run promotions, the more your business depends on them. Suddenly your “non-promo weeks” look like the product is failing… when really the promo is what’s distorting demand.

This is making me think of behavioral economics: people don’t just respond to value… they respond to how the value was earned.

YES. This is where it gets fun. There’s legit research from Harvard Business School on the “IKEA effect” — people value products more when they’ve had a hand in creating or earning them. Labor leads to love.

So it’s not just the reward — it’s the story of getting the reward.

Right. “15% off” feels like a coupon. But “you unlocked this” feels like an achievement.

That’s a huge difference. One is transactional. The other is emotional.

Exactly — and emotion is what discounting destroys. Discounting removes drama, removes pride, removes identity. It turns shopping into math.

Okay — so what’s the alternative? Because brands feel stuck. Cost of acquisition is up, competition is intense, and they need conversion now.

This is where smart brands are moving toward conditional reward systems instead of flat discounts. Same goal — drive action — but a completely different psychological engine.

Break that down. What does “conditional rewards” actually mean?

It means instead of “Here’s 15% off,” you create a path to value:

“Complete a quick quiz → unlock free shipping”

“Play a short challenge → reveal your reward”

“Chance to win your order free”

You’re using progress, anticipation, and earned value — not pure price cutting.

And I can already hear luxury brands saying: “We’re not turning our website into a casino.”

Totally fair. That’s where tasteful gamification matters. You don’t use the words “spin,” “wheel,” “jackpot.”

You use language like:

“Unlock”

“Reveal”

“Private bonus”

“Exclusive reward”

And visually it’s minimal and premium — clean UI, elegant motion, no neon.

So it’s gamification without the Vegas energy.

Exactly. It’s not about being loud — it’s about being interactive.

Okay, let’s make this super practical. If a brand is listening right now, what can they do this week?

Three plays — simple, effective, and honestly more brand-safe than discounting.

Love it. Hit me.

First: Replace blanket discounts with earned perks.

Example: “Answer 3 questions → unlock free shipping.”

This does three things:

Makes the reward feel earned

Increases engagement time

Captures zero-party data you can use for personalization later

That’s a big upgrade from “here’s 10% off.” You’re getting something back besides the sale.

Exactly. Second: Use probability instead of certainty.

Instead of giving 100% of customers 15% off, offer:

“1 in 10 wins their order free”

“Instant win: gift / shipping / store credit”

It creates excitement… while controlling expected costs.

And it’s more memorable too. People tell friends “I won my order free.” Nobody tells friends “I got 15% off.”

YES. That’s the key. Conditional rewards create stories. Discounts create receipts.

Okay — what’s the third play?

Third: Frame small rewards as premium bonuses.

A $5 gift can beat a 15% discount in perceived value if it’s positioned as:

“Exclusive member add-on”

“Limited bonus item”

“Unlocked reward”

Same cost, higher perceived value, no brand dilution.

That’s such a reframing moment. Brands think they need bigger discounts… but often they need better meaning.

Exactly. Because the real question brands should be asking is changing from:

“How much can we discount?”

to:

“What can customers do to earn value without breaking our price integrity?”

So it’s basically a hierarchy — like a smarter ladder of promotions.

Precisely. The Promotion Ladder:

Value-first (no promo): bundles, education, social proof

Earned rewards: quiz/game unlocks a perk

Conditional rewards: chance-to-win, instant reveals

Discount only when necessary: inventory clearing, seasonal urgency

That feels way more sustainable — and also way more aligned with how premium brands want to feel.

And here’s the kicker: companies that get pricing right don’t just see sales lift — they see margin lift. McKinsey has noted sustained gains like 2–5% sales growth and 5–10% margin increases when retailers implement more advanced pricing approaches.

So you’re telling me the goal isn’t “no promos.” The goal is better promos — ones that protect brand equity instead of eroding it.

Exactly. The future isn’t promotion-free. It’s promotion with integrity.

Discounts might buy conversion… but earned rewards buy loyalty and margin.

Okay but I have to admit — those spinning wheels can be so tempting.

Same. They convert… but they also train customers to behave like bargain hunters. The better move is giving people something they feel proud to unlock — not something they feel conditioned to wait for.

So maybe the new retail power move isn’t “stop discounting.”

It’s: stop bribing customers… and start rewarding them.

That’s it. Make promotions meaningful. Make them earned.

Because the brands that win aren’t the ones who discount the hardest —

they’re the ones who protect their value while still creating excitement.

That's it for the PlayAbly podcast today - we have another podcast case study up later this week so stay tuned.