You just ran a 20% off promotion and sales spiked handsomely, especially among your regular customers. But then prices go back to normal. And you notice even your faithful customers are overdue for another order. You run another promotion. And those customers are back in full force, driving sales up. Then the promotion ends. And those customers? Crickets.
Meanwhile, your margins begin to erode. Some of your loyal customers disappear altogether. You go back and look at the transaction history of your frequent customers. Immediately, you notice a pattern: prior to your promotions, they bought on a largely predictable cycle. When you ran your 20% off promotion, they stocked up. Hence, they didn’t reorder when you expected them to. Even worse, most of them didn’t repurchase until you ran your next promotion. And those who left for good? Repeated discounting may have diluted your brand’s premium positioning.
Like many other DTC brands, you confused short-term lift with long-term growth. The sales you achieved were not incremental. You just encountered the double-edged sword of promotions: they drive demand, yet they also reshape customer behavior.
Most brands don’t realize they’re slowly teaching customers to avoid paying full price. This is where price elasticity – that dull concept you learned in Economics 101 – becomes a warning signal about your customers’ behavior.
Price Elasticity Is Really About Customer Behavior
Price elasticity measures how sensitive customers are to price changes. When a product’s sales increase sharply after a price drop (or decrease sharply after a price hike), then demand for the product is said to be elastic. If the sales remain largely unchanged after the price either goes down or up, then demand is said to be inelastic. Prescription drugs often have inelastic demand.
From a marketing standpoint, elasticity isn’t just about pricing; it’s about customer behavior. Demand influenced primarily by discounts tends to become more price-sensitive over time, while demand driven by your brand’s equity or value is often more substantive. While most DTC brands offer products that are discretionary to most buyers, their price elasticity is not static: your promotion strategy changes it.
How Discounts Quietly Reshape Buying Behavior
Your promotions’ risk of training customers to time purchases is predicated on three key factors: the pull-forward effect; reference price resetting; and promotion conditioning.
Imagine a premium DTC coffee brand running a promotion with savings on its signature brand, selling it for $19.99 per pound instead of its regular $24.99 per pound. Sales shoot up immediately.
But the brand notices that many of its customers who regularly buy at full price place much larger orders during the promotion. After the promotion ends, these customers don’t reorder at their usual cadence. This is the pull-forward effect: the 20% discount was large enough to entice the brand’s loyalists to shift their planned purchases earlier.
But the pull-forward effect wasn’t even the worst of it: several of those same customers didn’t repurchase the signature coffee even when it was likely they’d run out. Why?
After the promotion, many customers began anchoring the value of the signature coffee to the discount price and now view the original price as “too expensive.” Hence, they are unlikely to buy at full price anymore. Even worse: the discounted price of the signature coffee may have cheapened its perception in the eyes of the brand’s truest coffee aficionados, so they stop buying it entirely. These behaviors are examples of reference price resetting.
And if those weren’t bad enough, several consistent buyers now only buy the signature coffee when there’s another promotion. They learned from the promotion that the coffee company will “always have another sale.” They have been conditioned to delay purchase until the next promotion.
When Revenue Spikes Hide Weak Demand
Promotions generate revenue spikes in the short-run, but often that growth is “fake growth,” since it’s driven by timing and not demand. To determine whether your promotions are generating true growth, you must understand your baseline demand – your brand’s normal level of demand without promotional activity.
Poorly designed discount promotions may still generate significant short-term sales gains, but those spikes often mask weak baseline demand, erode margins, and increase demand uncertainty. Increasing price sensitivity can signal weakening brand differentiation or growing promotion dependence.
The premium DTC coffee brand now experiences low margins because it must keep promoting its product at a lower price. The discount and increased marketing costs erode margins significantly. And because customers wait for each promotion, baseline purchases are much less stable and predictable. Even more problematic is that heavy discounting could have attracted highly price-sensitive buyers who were never likely to become loyal customers in the first place.
4 Signs Your Customers Have Become Promotion Dependent
There are several simple methods you can use to diagnose whether your customers have been promotion conditioned. These include:
Comparing Promo vs. Non-Promo Sales
If you’ve built marketing mix models – statistical models that estimate how pricing, promotions, and marketing affect sales – they can be especially helpful here. Examine sales during periods when you run a promotion and when you didn’t run one. How are sales during the non-promotional period? Are your promotional periods more frequent than your non-promotional period? Frequent reliance on promotions may indicate that your customers have been conditioned.
Look for Post-Promo Dips
Create a baseline for sales leading up to the promotion period. After the promotion ends, do sales go back to around the baseline or do they go lower? If they go lower than the baseline, customers have likely pulled their demand forward. Again, the results of a marketing mix model will be useful here.
Track Time Between Purchases
Before the promotion, what was a customer’s typical purchase cycle? After you run a promotion, examine the length of time between purchases afterward. If purchase cycles are widening, customers are likely delaying purchases.
Measure Discount Sensitivity Over Time
Track the promotions you’ve run over the last year and examine the lift they generated. If you need bigger discounts to drive the same lift, then you’ve likely trained your customers to wait for the next sale.
Regression and marketing mix models can estimate elasticity reasonably well when enough historical data exists.
How Leading DTC Brands Use Promotions Strategically
The DTC brands whose promotions generate long-term growth and favorable customer behavior change are those who use promotions strategically and not tactically.
Successful DTC brands structure their promotions by building in value beyond price, focusing on the brand, experience, and product differentiation.
Returning to our premium coffee brand example, instead of discounting its signature flavor, it might instead build promotions on how to gain the full experience of that flavor:
- How it pairs with various foods
- How to prepare it for maximum taste
- How its story came about
In this way, the coffee purveyor builds engagement with its customers and encourages them to keep buying, without discounting.
The coffee brand can go further by offering customers subscriptions, allowing them to earn discounts by committing to steady purchases over time. Or they can offer customers a bundle discount: buy any three flavors and get a free pound of signature coffee. In structuring promotions this way, the company can create a sense of high perceived value for its coffee and its brand.
Focusing your promotions on value rather than price is just one way leading brands win. Other ways they drive true growth include:
- Having less frequent promotions
- Testing smaller discounts, with A/B testing
- Segmenting offers, so that not everyone gets a deal
Leading DTC brands don’t try to eliminate promotions – they focus on controlling elasticity.
Conclusion: Promotions Are a Strategy – Not a Shortcut
Promotions are necessary for DTC brands to get their name out there, and they’re not inherently bad. However, you must know what you want each promotion – especially if it involves a discount – to accomplish for your brand.
It’s one thing to offer a discount to encourage product trial, or to clear out merchandise. It’s quite another to give a blanket discount. That last type of discount is what trains your customers to wait for bargains, so managing your promotions and knowing their objectives is crucial. Over time, excessive discounting doesn’t just lower prices — it lowers customers’ willingness to pay full price at all. If you don’t measure how your promotions affect price sensitivity, you’re not managing elasticity.
The brands that win long-term aren’t the ones that discount the most – they’re the ones that understand what their discounts are actually doing.
