Margin vs. market share: why retailers can’t keep playing the discount game

The psychology of the discount reflex

Let’s start with the human side.

Promotions can be addictive. They offer immediate feedback: sales spike, sell-through improves, and reports look greener. That hit of “commercial dopamine” feels good, especially when in-store footfall is down or KPIs are under pressure.

But, over time, it rewires behavior across the business:

• Buyers overcommit on volume, assuming price cuts will bail them out

• Merchandisers focus on short-term clearance, not long-term productivity

• Marketers lean on “30% off” messaging because it performs reliably in email and paid media

• Customers learn to wait for discounts, and hold back on full-price purchases
  

It creates a dangerous loop: we sell more, but make less. And worse, we train our customers to devalue our product and brand.

The real cost of the discount addiction

There’s a long-standing myth in retail that if margins are declining, it’s just the cost of staying competitive. But here’s what’s really happening when discounting becomes the default:

1. Margin drain

Every percentage point of discount given away unnecessarily is money that could’ve been reinvested in product, people, or innovation. For mid-sized retailers, blanket markdowns can wipe out millions in potential profit annually.

2. Brand erosion

Over-discounting doesn’t just hurt the bottom line, but changes perception. If your “new in” drops to 40% off two weeks later, customers start to mistrust your pricing. That undermines brand value, particularly for lifestyle or aspirational brands.

3. Inventory inefficiency

Markdowns applied late in the season, or inconsistently across channels, trap working capital. Clearance decisions become reactive, often made under pressure, with no visibility into which items are truly overstocked or which could still sell at higher price points.

A better question than margin or market share

Framing the problem as margin vs. market share creates a false binary.

The real question retailers should be asking is:
“How do we maximize profitable sell-through, while protecting brand and customer trust?”

That’s where smarter, AI-assisted decision making changes the game.

Because the truth is: you can grow sales and improve margin. You just need to make sure your discount decisions are strategic, not sweeping.

Enter AI: How to trade smarter, not just harder

AI has the potential to help retailers escape the discount trap. It doesn’t do this by removing promotions altogether, but by making them more precise, better timed, and more profitable. Here’s how:

Product-specific elasticity insights

AI models can estimate price elasticity at the SKU level. This means you don’t just know what’s not selling, but how much of a discount is actually needed to change demand. You’d be surprised how often that answer is: “less than you think.”

Simulating trade-offs in advance

Rather than committing to 30% off across an entire category, AI can show the projected impact of 5%, 10%, or 20% markdowns on both sell-through and gross margin. This lets you choose the right balance, rather than guessing.

Segmented and localized tactics

Not every channel or store behaves the same, meaning that one-size-fits-all promotions waste opportunity. AI enables dynamic strategies — markdowns that vary by geography, store type, or digital behavior — optimizing sell-through without over-discounting where you don’t need to.

Campaign evaluation and learning loops

With AI-led systems, every promotion becomes a learning opportunity. Models ingest post-campaign performance data, improving their recommendations over time and preventing repeated mistakes.

Real world impact: what we’ve seen at Peak

We’ve been working with forward-thinking retail brands for over ten years now, helping them to refine their approach to pricing with data, AI and machine learning. In the margin optimization projects we’ve delivered, the most successful retailers tend to share two traits:

They start by understanding their true discount dependence

• Where is margin most eroded?
• Which categories or teams lean too heavily on price cuts?
• What’s the real cost of your markdown reflex?

They adopt AI incrementally, but decisively

• Start with high-volume or problem categories
• Test multiple discount strategies in parallel
• Measure outcomes in both revenue and retained margin

The results are compelling… 🏆

• 200–500 bps of margin uplift on promoted product lines 
• Higher full-price sell-through in targeted categories 
• Increased trust from commercial teams who now make decisions based on data, not gut feel

From default to deliberate: building a promotions strategy that works

There are some clear differences between a traditional approach to discounting and a future-fit promotional strategy:

Traditional approach

• Timing: Fixed to the calendar
• Depth: Flat across all SKUs
• Scope: Blanket campaigns
• Measurement: Based on volume uplift
• Process: Manual and reactive

Modern approach

• Timing: Triggered by live data
• Depth: Varies by price elasticity
• Scope: Segmented by channel and demand
• Measurement: Based on profit and velocity
• Process: AI-supported and strategic

This isn’t about replacing people with machines. It’s about equipping traders, merchandisers, and planners with tools that make them faster, smarter, and more effective.

Conclusion: the discount game has changed

We’re entering a new age of retail, one where margin resilience is a competitive advantage, not just a finance KPI. The retailers who continue to operate in the same way, defaulting to discounting, will struggle to defend their economics in a world of rising costs and increasingly-savvy consumers.

But those who rethink their markdown and promotion strategy — those who use AI to power precision and profit at scale — will find they don’t have to choose between market share and margin, but achieve both.