Last Updated on June 8, 2026 by Jason Andrew
Discounting without a clear reason is a margin problem disguised as a marketing strategy.
In Part 1 of this series, we covered why reflexive discounting destroys profitability and brand positioning. But discounting is not always wrong. Used deliberately, in the right circumstances, it is a legitimate commercial tool.
There are exactly two scenarios where discounting makes financial sense for an eCommerce business. This article covers both, explains the conditions that make each one defensible, and gives you a framework for deciding when to hold the line and when to act.
Scenario 1: Clearing slow-moving or obsolete stock
The real cost of stock that sits
Slow-moving and obsolete inventory is one of the most common sources of invisible cost in eCommerce businesses. It ties up cash that could be deployed elsewhere, occupies warehouse space that carries a fixed cost, and deteriorates in value the longer it sits.
Many Founders hold on to old stock because they are anchored to what they paid for it. That anchor is understandable but financially irrational. The purchase cost is a sunk cost. It does not change regardless of what you do with the product now. The relevant question is not what you paid, but what the inventory is costing you to hold, and what you could do with the cash if it were freed up.
In 2026, with warehouse and fulfilment costs having risen significantly over the past two years across most Australian third-party logistics providers, the carrying cost of dead stock is higher than many Founders realise. If your aged inventory is sitting in a 3PL at $25 to $40 per pallet per month, the true cost of holding it compounds quickly.
When to discount to clear stock
Use the following decision guide when assessing whether to discount a product line:
| Stock Situation | Recommended Action |
|---|---|
| Stock older than 6 months with no clear demand signal | Discount aggressively |
| Seasonal lines post-season with no storage value | Discount to cost or below |
| Slow movers but still relevant to current range | Bundle or reduce margin |
| Recently launched, low sell-through after 8 weeks | Review positioning before discounting |
| Core SKUs with temporary demand dip | Hold price, review marketing |
The objective is to free up cash and space for SKUs that actually sell. Selling at cost or even at a small loss is often the right financial decision once holding costs, opportunity cost and further value deterioration are factored in.
Treat aged inventory as a sunk cost. The goal is to exit the position cleanly, not to recover your original margin.
Scenario 2: Using discounts as a customer acquisition tool
The logic behind acquisition discounts
Discounting as a customer acquisition strategy is built on one core assumption: the customer you acquire today at a lower margin will generate sufficient revenue at full price over their lifetime to justify the upfront cost of winning them.
That assumption is reasonable. But it is only valid if you are actually tracking whether it is true.
Most eCommerce businesses that run acquisition discount campaigns, think Black Friday Cyber Monday, EOFY sales, or new customer codes, do not do the follow-up analysis. They measure the volume of new customers acquired. They do not measure what those customers do next.
The metrics you need to track
Before running a discounting campaign to acquire new customers, these are the numbers you need to understand and monitor:
| Metric | What it measures | Why it matters for discounting |
|---|---|---|
| Customer Acquisition Cost (CAC) | Total spend to acquire one new customer | Sets the baseline cost of the discounting campaign |
| Average Order Value (AOV) | Average revenue per transaction | Determines margin available to fund the discount |
| Customer Lifetime Value (LTV) | Total revenue a customer generates over their relationship with the business | The number the entire acquisition logic depends on |
| LTV:CAC Ratio | LTV divided by CAC | A ratio above 3:1 generally indicates a sustainable acquisition model |
| Payback Period | Months to recover the acquisition cost from gross profit | Shorter is better; over 12 months is a cashflow risk |
| Full-Price Repurchase Rate | Percentage of discount-acquired customers who later buy at full price | The most important metric for validating the discount acquisition thesis |
The most important number on that list is full-price repurchase rate. If the customers you acquire through a discount campaign never return, or return only during future discount events, the acquisition thesis does not hold. You have not acquired a customer. You have acquired a transaction.
Cohort analysis: the tool that tells you if it is working
A cohort analysis groups customers by the period in which they were acquired and tracks their behaviour over time. It is the most reliable way to determine whether discount-acquired customers are genuinely profitable over their lifetime.
For example: if you ran a 20% discount campaign in November 2024, a cohort analysis would track that group of customers through 2025 and into 2026 to determine:
- How many made a second purchase, and at what price
- What their average order value was on subsequent purchases
- Whether they bought during full-price periods or only during future promotions
- At what point the cohort became collectively profitable
Without this analysis, you are operating on hope rather than data. The assumption that discount-acquired customers become profitable long-term customers is common. The evidence that it is actually happening in your business is rarer than it should be.
The price anchor problem
The structural risk with acquisition discounting is that it sets a low price anchor at the start of every new customer relationship.
Once a customer has bought at a discounted price, that price becomes their reference point. Any future communication at full price is perceived as more expensive than the product actually is. The customer has not anchored to your real price. They have anchored to the discounted one.
Over time, this creates a segment of your customer base that only engages during promotions. They have been trained to wait. From a top-line perspective, you may appear to be maintaining revenue through periodic discount campaigns. From a margin perspective, you are running harder to stay in the same place.
Discounting to acquire unprofitable customers is not a growth strategy. It is a volume strategy that can destroy margin if it is not measured and managed carefully.
A practical framework: when to discount and when not to
Use this as a quick reference before committing to any discounting decision:
| Scenario | Guidance | |
|---|---|---|
| ✓ | Clearing aged or obsolete inventory | Discount to cost or below. Treat it as a sunk cost and move on. |
| ✓ | Structured acquisition campaign with clear LTV data | Acceptable if LTV:CAC is above 3:1 and full-price repurchase rate is tracked. |
| ✓ | Volume commitment from a single buyer | A documented price-for-volume trade-off is a commercial decision, not a discount. |
| ✗ | Reacting to a slow sales week | This is panic discounting. It trains customers to wait and erodes margin permanently. |
| ✗ | Matching a competitor's price | Race-to-the-bottom behaviour. Compete on value, not price. |
| ✗ | Making an already-interested prospect feel special | Unnecessary margin sacrifice. The customer was already buying. |
Discounting in the 2026 eCommerce environment
Australian eCommerce operators are navigating a more competitive discounting environment than at any point in the past decade. The growth of ultra-low-cost international platforms has shifted consumer price expectations in several categories, and discount events like BFCM have expanded from a single weekend to campaigns spanning most of November.
The pressure to participate in these events is real. But the businesses that are protecting margin in this environment share a common discipline: they treat discounting as a financial decision, not a marketing default.
That means calculating the acquisition economics before launching a campaign, not after. It means setting a maximum discount budget based on an acceptable CAC rather than matching a competitor’s percentage. And it means tracking cohort behaviour systematically so the next campaign is built on evidence rather than assumption.
Frequently Asked Questions
👉 Want to understand whether your discounting is actually making you money? margin structure and help you build a discounting policy that is grounded in data rather than gut feel.
