From Sledgehammer to Scalpel: How Precision Promotions Can Boost Demand Without Destroying Margins
Introduction
Most businesses approach promotions with a sledgehammer: broad discounts designed to move inventory quickly. While this strategy might drive short-term sales, it often comes at a steep cost: eroded margins, reduced profitability, and a devaluation of the brand.
However, there is a smarter way. Precision promotions and strategic incentives can generate demand while protecting profitability. The key is shifting from mass discounting to a personalized approach— one that considers customer behavior, inventory strategy, and alternative incentives.
If your team is still applying blanket discounts when targeted offers would be more effective, it’s time to rethink your promotion strategy. Here’s how businesses can refine their approach to drive growth while safeguarding the bottom line.
Rethinking Promotions: Are You Defining Them Wrong?
Many companies unknowingly undermine their own profitability by structuring promotions the wrong way. The most common mistakes include:
- Using the wrong data: Businesses often rely on outdated or generic metrics when setting discount rates, failing to analyze customer purchase history or price sensitivity.
- Over-discounting: Not every customer needs 30% off to convert—some would buy with just 10% or with a non-monetary incentive.
- Ignoring customer segmentation: Applying the same discount to all customers ignores behavioral differences. VIP customers might buy with an exclusive early-access offer, while first-time shoppers might need a stronger incentive.
- Focusing on internal needs rather than customer motivation: Promotions are often designed to hit short-term sales goals, rather than to enhance long-term customer relationships.
With a precision promotions approach, you’ll create a loyal, long-term customer, not just winning a one-off sale.
“Smart promotions are a huge strategic advantage”, says Christoph Gerber, co-founder and CEO of leading loyalty and promotions platform Talon.One. “Being best-in-class at offers was a big part of the success of my first business. From the early days all the way through our IPO, incentivizing efficiently helped us compete with (and eventually overtake) larger incumbents. Those players were inundating their customers with the same generic discount. But we were able to personalize & geofence our incentives to make our smaller marketing budget drive better results.”
To solve these problems, start experimenting with smarter data sets. Instead of setting discounts blindly, businesses should use customer data to personalize promotions based on purchasing behavior. This way they can start to explore what works and what doesn’t with greater granularity and adjust to maximize outcomes, testing multiple discount levels to find the lowest necessary incentive that still drives conversion. Most importantly, they can begin to truly measure the incremental impact of promotions to ensure they are adding revenue rather than just shifting purchasing timing.
By replacing broad discounting with data-driven, segmented offers, businesses can retain more margin while still driving demand.
Discounting with Inventory Movement in Mind
For many companies, discounting is primarily about clearing stock. The traditional approach follows a predictable cycle:
- Sales plateau on an item.
- Merchandising lowers the price to move 75% of remaining stock.
- After sales plateau again, another discount follows.
- The cycle repeats until 99% of stock is sold.
This works—but it’s a blunt instrument. Some customers would have bought with a much smaller discount or even a non-monetary incentive. Instead, treat promotions as a strategic tool rather than just a clearance mechanism.
Prioritize high-value customers when offering discounts and reward loyal customers with exclusive offers and early access, rather than mass price cuts. Use targeted promotions that combine inventory movement with customer engagement— for example, bundling slower-moving products with popular ones. And offer alternatives to discounts, such as early access to new collections, bonus loyalty points, or unique experiences that create meaningful engagement and build the customer relationship without profit cutting.
Jumping immediately to a deep discount is a common mistake, slashing margins without exploring alternative incentives. But there are smarter alternatives to traditional discounting and by adjusting promotion structures to protect margins, businesses can maintain profitability while still driving demand. By treating promotions as a strategic tool rather than just a way to clear inventory, businesses can improve both their bottom line and long-term customer relationships, increasing customer loyalty and profitability at the same time.
“CRM and loyalty teams can offer a ton of value to the business if they can partner effectively with Inventory teams, “ notes Gerber. “Anything we can do to gradually increase the value proposition of an item before clearance helps protect the bottom line and can help us fund a lot of the value we deliver to customers & members.”
Key Considerations for Smarter Promotions
To execute this approach effectively, businesses need the right internal alignment and data capabilities.
Who Needs to Be Involved?
Getting this right requires a collaborative mindset and specific coordination. There are three segments of the organization that need to work in coordination with one another to effectively reorient the promotion and loyalty engine within a business.
The first is Marketing & Merchandising. These two teams must work together to ensure promotions align with both demand generation and inventory needs. The next is Finance, which oversees margin impact and ensures promotions drive net revenue growth. And the third and final group is Data Science & Analytics. This team can provide predictive insights on customer behavior and promotion effectiveness.
Each of these business units must operate effectively within its primary function, but more important these segments must align and coordinate with one another to ensure the right promotions are targeting the right people at the right level to maximize revenue, and that the programs in place are being measured, evaluated, and adjusted to ensure they continue to do those things over the long haul.
Alongside those closer working relationships — especially between Marketing & Merchandising — there’s a shift in mindset required organizationally, from short-term sales-driven promotions to a long-term margin optimization mindset.
“The most innovative businesses have an org-wide focus on their incentives spend. If you listen to the earnings calls of the top-performing retailers, the CEO will be talking about all the things they are doing to sell at full price,” says Gerber. But he adds that too many businesses lack that mandate, with siloed teams chasing a short-term KPI at the expense of long-term profitability. “The value of a better approach is clear: every 1% of revenue we save from discounting goes straight to the bottom line.”
And finally, there are the data needs themselves. To successfully move to a precision promotions approach, brands need:
- Customer segmentation data to personalize offers
- Promotion performance analytics to measure effectiveness
- Inventory forecasting models to optimize discount timing and levels
Moving from Sledgehammer to Scalpel
For years, businesses have relied on broad discounts as a go-to strategy for moving inventory and driving sales. But this sledgehammer approach is no longer sustainable.
By shifting to precision promotions, companies can use customer data to personalize discounts and improve ROI; align inventory management with targeted incentives rather than mass markdowns; and replace deep discounts with smarter incentives like loyalty rewards and exclusive offers.
The future of promotions is targeted, data-driven, and margin-conscious. Those who refine their strategy today will be the profitability leaders of tomorrow.
Thomas Mulreid
VP, Sales, Orium
Thomas Mulreid, VP Sales at Orium, brings a deep understanding of the headless and composable commerce ecosystem and the future it unlocks for major brand transformation projects. He has been involved in 50+ projects, bringing both the technical and business-centric knowledge required to plan and execute successful composable commerce replatforms.