Discount in the holiday sale or hold your price
Decide whether to join the holiday discounting or hold your price, using margin maths and the brands for which discounting does real damage.
Everyone around you has announced a sale
From late October the marketplaces run their big events and your competitors cut prices and your paid media gets more expensive at the same moment. The pressure to match is real and it arrives with a deadline. Deciding by default means discounting because that is what the calendar suggests.
The decision is arithmetic plus one judgement. The arithmetic tells you how many extra units a discount must sell before it is worth doing. The judgement is what the discount teaches buyers about your price for the rest of the year.
What a discount actually costs you
A discount is not only the percentage off. It also costs you the margin on buyers who were going to pay full price anyway and that group is usually larger than anyone expects during a sale window. It costs you the extra returns that discount-driven buyers generate. It costs you the chargeback fees on orders that buyers later dispute. And it costs you the reference price. Buyers who purchased at a discount wait for the next one.
Run the number before anything else. Divide your gross margin by the margin remaining after the discount to find the sales multiple required to stand still. A product with a thirty per cent margin discounted by ten per cent keeps twenty per cent and needs one and a half times the units to match the previous profit. At a twenty per cent discount on the same product the required multiple becomes three. Check whether your own past holiday uplift has ever reached that multiple before assuming this one will.
Who should hold price and who should not
Hold your price if you sell something bought on trust rather than on comparison. Skincare and supplements and anything where a buyer worries about authenticity are harmed by a deep discount because the discount itself raises the question. The same applies to a premium position you have spent two years establishing. One aggressive sale can undo it and recovering a price point is far harder than lowering one.
Hold price too if you are capacity constrained. A maker with a six week queue gains nothing from more demand and loses margin on the demand already there. Discounting is for businesses with spare capacity and inventory risk.
Discount if you are carrying stock that will be obsolete or unsellable after the season. Apparel in a going-out colour and anything dated and anything approaching an expiry window should be cleared while demand exists. Holding price on perishing stock is not discipline. It is a write-off scheduled for January. Also discount if you genuinely need the cash cycle more than the margin which is a legitimate position and should be stated as such rather than dressed up as a growth strategy.
Alternatives that protect the reference price
If the maths does not support a price cut there are structures that increase order value without resetting what buyers believe your product costs. Bundle two items at a combined price so the individual price stays visible and intact. Add a gift rather than cutting the price because the gift costs you its own value and not a percentage of everything you sell. Offer free shipping which is often a smaller real cost than it appears to buyers.
A time-boxed sale does less damage than a permanent one. Announce the end date and honour it. A sale that quietly continues into January teaches buyers that the discounted price is the real price.
If you must cut price cut it on a narrow selection rather than the catalogue. Discount the items that need clearing and the entry products that bring new buyers in. Protect your margin leaders and your newest lines. A sitewide percentage is the easiest decision to implement and the most expensive one to have made.
Judging it afterwards
Revenue during the sale flatters and so does order count. Both rise under almost any discount and they say nothing about whether the exercise paid. Marketplace rank during the event flatters as well because it is bought with margin.
Measure contribution in dollars rather than percentages. Take sale period revenue and subtract product cost and discount and commission and payment charges and shipping and returns. Compare that figure against a comparable non-sale period of equal length. Then check the following quarter. If full-price sales in January and February sit below the previous year the discount pulled demand forward rather than creating it and the sale was a loan against your own future revenue.
The common mistake
The expensive mistake is discounting the whole catalogue at one percentage because it is simple to configure. It applies the deepest real cost to your best products and the least useful stimulus to your slowest ones. Businesses do this every year and conclude from rising revenue that it worked.
The second mistake follows from the first. Having discounted once the business discounts again at the next occasion and then again until there is always a sale running. At that point the discounted price is simply the price and you have permanently lowered your margin without ever deciding to. If you cannot see a route back to full price after the sale ends you are not running a promotion. You are repricing.
This guide explains how something works. It is not legal, tax or financial advice, and rules change. Confirm anything regulatory with a qualified professional before you act on it.