Why discounts kill profits: 6 steps to protect price and retain customers

«The discount trap» occurs when a business tries to stimulate sales exclusively by lowering the price, which leads to the product being devalued in the buyer's eyes, reduced margins, and a situation where customers buy only during sales.

To avoid this and maintain the average price (average receipt value), using the capabilities of your Torgsoft software and general strategies, I recommend following these rules:

1. Replace direct discounts with a bonus system

A direct discount instantly reduces the amount of money in the cash register. A bonus system is a «deferred discount» that makes the customer come back.

• Why it works. The store owner postpones the loss of cash for a certain period, and this money remains in the business circulation. The customer becomes attached to the store because they have «virtual money» in their account.

• Implementation. Set up a bonus system so that bonuses are accrued but have an expiration date (expire if unused). This encourages customers to shop more often without requiring you to keep lowering the price tag.

Look at the practices of Ukrainian retail leaders such as Comfy, Allo, or the Fishka loyalty program (OKKO). They rarely give a direct discount «here and now». Instead, the customer buys a product or service at full price and receives cashback to a bonus account. This creates a strong psychological hook: the buyer perceives the accrued bonuses as their own "earned" money that they do not want to lose. As a result, when making the next purchase — accessories, coffee, or small appliances — they return specifically to you to use their balance, effectively guaranteeing the business a repeat sale.

2. Set technical restrictions on discounts (margin protection)

The program allows you to block the possibility of selling a product below a certain profitability level, which physically prevents staff from «destroying» the price.

• Maximum discount for a product. For products with a low markup (for example, diapers in a children's store or related goods), set a restriction. If the markup is 5%, and the customer has a discount card with 10%, without this restriction you will sell the product at a loss. In the product type settings, specify «Maximum discount (%)». If you set 0, then discounts will not apply to this product at all.

• Minimum price control. In the employee role settings, set the «Minimum selling price control» parameter. You can choose the option «Prohibit sale below cost» or «Ask about sale below cost». This will protect you from accidental or deliberate dumping by staff.

A clear example is the sale of Apple devices in large chains such as Comfy, Citrus, or Foxtrot. The margin on iPhones or MacBooks is minimal, unlike accessories or services. Therefore, even if a customer has a "gold card" or a birthday promo code for a -10% discount, the checkout software automatically blocks its application to the main gadgets. The system will allow a discount on a case or screen protector, where the markup is high, but it will not technically allow the cashier to sell a flagship smartphone "at a loss", protecting the profitability of the deal.

3. Differentiate prices and conditions (Porter's strategy)

Do not compete on price alone. If your product is perceived as a standard consumer item, the buyer's choice is based only on price, which creates pressure on profit.

• Avoid being «stuck in the middle». A company that tries to be everything to everyone (neither the lowest-cost leader nor a business with unique differentiation) guarantees itself low profitability. You should either offer a unique service/product or focus on a specific niche where customers are less price-sensitive.

• Threshold for wholesale prices. Use a wholesale pricing policy where the price decreases only when a certain quantity of units is purchased. For example, the price drops only when buying 5 or more units. This preserves the average price for retail buyers and encourages volume.

A perfect example of such a policy is shown by Metro Cash & Carry. Their price tags always indicate two price levels: the standard one — for a single unit, and the reduced one — when buying 3 or 6 units. This strategy helps maintain high margins on small retail sales while motivating the customer to increase the average receipt value on their own in order to save money. This is a classic way not to devalue the product for everyone, but to reward only purchase volume, which is technically easy to implement through «threshold pricing» options in the software.

4. Analyze efficiency, not just turnover

A discount makes sense only when it increases the total amount of profit, not just turnover.

• Discount usage analysis. Regularly review the «Discount Usage Analysis» report in Torgsoft. It will show which discounts were granted, which salespeople abuse them, and whether these sales generated real profit (profitable sales are shown in black, loss-making or zero-profit ones in brown).

• Price impact on profit analysis. Use the «Analysis of the impact of selling price on profit» report. It allows you to see how much profit a product generated at full price and how much at a discounted price. It often turns out that selling a smaller number of goods at full price is more profitable than holding a mass sale.

A classic example is the analysis of the effectiveness of seasonal sales in large fashion retailers such as Intertop or mass-market chains. During «Black Friday», turnover may grow several times over, creating an illusion of success. However, deeper analytics often reveals a paradox: selling 1,000 units with a -50% discount brings less net profit than selling 300 units at full price during a regular season. Without a clear report, the owner sees only lines at the checkout, while the business is actually burning its margin on logistics and operating costs.

5. Prevent staff abuse

Sometimes the «discount trap» is created artificially by sales staff.

• «Discount into the pocket». A salesperson can ring up a product with a discount for a customer who does not know about it (or does not have a card) and pocket the difference. This distorts your statistics and lowers the average selling price.

• Solution. Introduce mandatory receipt issuance to the customer and prohibit manual entry of the discount card number (only scanning of a real card or verification via SMS).

This is a typical scheme often uncovered by security services in pharmacy chains (for example, ANC, Podorozhnyk, or local pharma markets) or clothing stores. The customer pays cash at full price, refusing a discount or not having a card. The cashier, having a barcode of a «standby» card or a photo of the barcode on a phone, discreetly scans it during payment. In the system, the sale goes through with a 5-10% discount, and the cash difference (paid by the customer) is pocketed by a dishonest employee. The owner sees in the reports «active operation of the loyalty program», but in reality loses net profit for no reason.

6. Smart promotions instead of total sales

Instead of simply lowering prices on everything, use targeted tools:

• Promotions with conditions. Set up promotions such as «1+1=3» or a discount on the second receipt. This increases the number of items in the receipt, spreading the discount across a larger sales volume.

• Discount on slow-moving goods. Use the «Analysis of slow-moving products» report. Reduce the price only for goods that truly «freeze» your funds, not for the fast-moving assortment. Set a «Product discount» for such items, which has priority and is not combined with other customer discounts.

National cosmetics and household chemicals chains such as EVA or Prostor are masters of this strategy. Instead of directly reducing prices, they constantly rotate «1+1=3» promotions for certain product groups. This forces a buyer who came for one unit to take three, effectively clearing shelves of leftovers from previous collections or seasonal goods. For the business, this is an ideal way to turn capital «frozen» in the warehouse into live cash and increase the average receipt value, while psychologically the customer feels they are getting a benefit and the brand does not lose its value.

To preserve margins and ensure stable business development, we recommend a systematic approach to pricing. Your strategy should be based on three key components:

1. Motivation change: moving from direct discounts to a bonus system for long-term customer retention.

2. Technical control: configuring the software to automatically prohibit selling goods below cost.

3. Financial analytics: evaluating the effectiveness of marketing activities based on real profit, not just sales volume.