When discounts backfire: How promotions drive and sometimes destroy value in online retail

In the booming world of e-commerce, price promotions are a favorite weapon for winning over shoppers. But new research suggests that the same discounts that fuel sales can quietly eat away profits. A large-scale study in the Journal of Retailing, by Maarten Gijsenberg, Tammo Bijmolt and Christian Hirche, finds that some discounts don’t just encourage purchases they also encourage returns.

Using transaction data from nearly 84 million purchases and 37 million returns at a major European online retailer, the researchers traced how price cuts offered at checkout (“at-purchase discounts”) and those appearing soon afterward (“post-purchase discounts”) shape consumer behavior across more than 300 product categories. Their results expose a sharp paradox: promotions can create short-term gains but also trigger a hidden wave of lost value through regret-driven returns.

Two discounts, two very different reactions

Online retailers change prices constantly to match competitors, manage inventory, or spark demand. Shoppers therefore encounter two kinds of markdowns. At-purchase discounts are the visible deals offered during checkout; post-purchase discounts occur when the same product’s price drops again while it’s still eligible for return.

The study shows these two moments have opposite effects. When customers buy something on sale, they feel they’ve made a smart decision. Behavioral economists call it “transaction utility”, the satisfaction of paying less than expected. This sense of value tends to reduce returns, even if the product falls slightly short of expectations.

But when the price falls after the purchase, the feeling flips. Consumers perceive that they overpaid. That perceived unfairness sparks regret, and many act on it: they send the item back and repurchase it at the lower price. The authors call this “opportunistic returning.” Small price drops often go unnoticed, but once the new discount passes roughly 25 percent, the likelihood of returns rises sharply and non-linearly.

In short, discounts can create two kinds of customers—satisfied bargain hunters or frustrated returners—depending entirely on when the price drop happens.

The breaking point

The research pinpoints a clear tipping point where the math turns against retailers. For typical shoppers, once discounts reach about 40 percent, the damage from post-purchase returns outweighs the benefits of the initial promotion. For shoppers already experienced in exploiting discounts and returns, the threshold falls to about 20 percent.

Beyond these levels, deeper or repeated discounts can destroy more value than they create: spiking returns, eroding margins, and teaching customers to delay purchases until the next sale. In 2023 alone, the total cost of online returns in the United States was estimated at $248 billion, a reminder of how costly those behavioural shifts can be.

How customers learn to return

The study also uncovers a behavioral feedback loop. Consumers learn from experience. Those who have previously returned discounted items are far more likely to do so again. Over time, they monitor prices, anticipate further markdowns, and develop what the authors call return habits.

This turns discounting into a self-reinforcing cycle: promotions fuel purchases, price drops trigger returns, and repeated returns condition customers to expect future discounts. For retailers, it means each promotion not only affects this week’s sales but also reshapes customer expectations, gradually eroding pricing power and profitability.

Not every product behaves the same

The effects vary widely across product categories. By analyzing more than 350 types of goods, the researchers found that price sensitivity and return behavior depend on what people are buying.

• High-priced products such as electronics or furniture show the strongest reduction in returns from at-purchase discounts; the savings feel meaningful.
• Bulky or durable goods—sofas, appliances, equipment—are particularly sensitive to post-purchase price cuts. Even modest later discounts can trigger returns.
• Hedonic or seasonal items, like fashion or gifts, are less affected. Once bought for enjoyment or occasion, they’re rarely returned because of a later price drop.
• Search goods, where prices are easy to compare, show limited benefit from at-purchase discounts and higher vulnerability to post-purchase ones.

The takeaway: discount strategies must fit the category. What works in apparel may backfire in electronics or home goods.

Managing discount frequency and depth

The authors suggest retailers manage two levers: how often they discount and how deeply.

1. Infrequent, moderate promotions of about 20–30 percent can lift sales while keeping returns low, provided no new discount appears during the return window.
2. Frequent or deep promotions of 45–55 percent may produce a short-term sales spike but risk regret-driven returns, especially if prices change again within the same month.

Careful coordination matters. The study recommends avoiding back-to-back discounts and synchronizing campaigns across channels. For fashion or seasonal goods, larger end-of-season markdowns are still viable. For bulky, durable, or multi-brand categories, moderation pays off.

The hidden cost: Lost value from promotions

Beyond their effect on transactions, promotions can silently drain value from the retail system itself. Every unnecessary return adds reverse-logistics costs, inflates carbon emissions, and diminishes customer trust. The researchers note that repeated price swings create a sense of volatility: shoppers stop believing prices are stable or fair.

That distrust, in turn, lowers loyalty and undermines the credibility of “regular” prices. Promotions, once meant to build excitement, begin to feel like manipulation. The study’s message is clear: price instability is itself a source of value loss – financial, operational, and reputational.

Lessons for manufacturers and brands

Although the analysis centers on retailers, the findings carry equal weight for manufacturers. Frequent or inconsistent discounting doesn’t just hit store margins, it affects how consumers perceive the brand behind the product. When prices fluctuate or drop soon after purchase, buyers often view the product as over-priced at launch or of lower quality, weakening brand equity.

Manufacturers can apply three practical lessons:

1. Coordinate promotions with retail partners.
   Aligning the timing and depth of discounts prevents overlapping price drops, the main trigger of post-purchase returns. Shared pricing calendars and agreed thresholds (for example, keeping discounts below 25 percent on durable goods) protect both profit and brand reputation.
2. Use return data as feedback.
   High return rates highlight where products fail to meet expectations or where pricing sends the wrong signal. Manufacturers can use this data to refine design, packaging, or marketing claims.
3. Maintain pricing consistency.
   Stable, predictable prices project confidence and quality. By limiting deep price cuts and designing separate lines for outlet or clearance channels, brands avoid training customers to expect discounts and reduce the risk of regret-based returns.

Together, retailers and manufacturers can also consider price-protection guarantees or coordinated end-of-season strategies to minimize surprise price cuts. Such cooperation helps ensure that promotions serve both sides of the value chain instead of eroding it.

A changing promotional economy

The study’s broader message is that discounts are no longer neutral marketing tools, they are behavioral signals that shape the entire ecosystem. Poorly timed or overly aggressive promotions can set off chain reactions: reduced trust, trained opportunism, mounting returns, and shrinking margins.

Handled with discipline and coordination, however, promotions can still create genuine value, helping customers feel rewarded rather than regretful.

In the end, the research offers a quiet warning for an industry addicted to price cuts: every discount tells a story. If that story keeps changing after the sale, consumers may start rewriting the ending themselves by sending their purchases back.