Discounting and brand equity are directly linked, since repeated promotions teach consumers what a product is actually worth. This happens because once shoppers see a steep discount enough times, they stop trusting the full price. Once that belief sets in, brands struggle to raise prices again, since the discount has become the product’s real position. This video explains why an industry can spiral into a promotional race to the bottom.
Why Discounting and Brand Equity Are Locked in a Prisoner’s Dilemma
Discounting and brand equity are locked in a prisoner’s dilemma because once one competitor starts promoting, every other brand in the category has to follow just to avoid losing share, and the whole category ends up training customers to wait for the discount. In this video, Jon Lorenzini, Chief Marketing Science Officer at LiftLab, explains why CMOs facing tight budgets and aggressive targets so often end up here: skip the promotion and a competitor steals share, run the promotion and everyone else has to match it, and the category collectively commoditizes itself.
Lorenzini notes the effect compounds with repetition. Hear the same discount messaging enough times and a $200 product that was marked down to $15 stops feeling like a $200 product at all. Promotions still make sense when a business genuinely needs cash flow or conversions now, but Lorenzini frames it as a careful dance, since the same tactic that solves a short-term revenue problem is what erodes the brand equity a business needs long term.
In this video, you’ll learn:
How the prisoner’s dilemma applies to marketing and promotional strategies
Why excessive discounting can erode brand prestige over time
The psychological impact of price fluctuations on consumer value perception
How different industries experience varying effects of promotional pull-forward
The long-term risks of shifting a brand’s position within market stratifications
TIME STAMPFull Video Transcript: Discounting and Brand Equity Explained
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In this video, LiftLab’s Jon Lorenzini explains why discounting and brand equity are so tightly connected, and why some industries can get away with promotions more easily than others.
[0:00 – 0:55] The CMO’s Prisoner’s Dilemma
I think one of the challenges right now for a lot of CMOs is money is tight. They have shrinking budgets and increased expectations for attainment, or hitting your forecasts or goals. And unfortunately what happens is that results in a prisoner’s dilemma for all the CMOs collectively in an industry. If you are not the one promoting and the other one is promoting, they are stealing all your business. If you are the one promoting, then the other person has to promote, so now everyone’s promoting. And if everyone’s running these promotions and discounts, what they are effectively doing is commoditizing all their own brands collectively. If I had a product that was discounted down to $15 and then the next week it was $200, as a consumer, especially if I heard that message 100 times, I would be like, why would I spend $200 for a $15 good, because I know they are not going to sell me something at a loss.
[0:56 – 1:17] Balancing Revenue and Brand Equity
So this overdosing on promotions during tough times, it makes sense in a way where they need revenue, they need cash flow, they need conversions now so that they can continue to run their business as well as grow market share and all these other pieces. But it is a very careful dance that you have to walk, because it erodes brand equity for the reason I highlighted.
[1:18 – 2:00] Industry Variations in Promotion Effectiveness
Depending on the industry though, the challenges are lighter or heavier. For instance, if you own a pasta company, I am Jon Lorenzini, I am Italian, so of course I think about pasta. If you have the boxes of pasta, you could stock your pantry. If you have a discount, you have now pulled forward all the conversions that you would have had buying the pasta throughout the year to stock up your cabinet, and say, hey, I got a discount, and now you are not going to get sales in the future. So that is your pull forward effect. If you are a plumber, though, and someone’s house is flooding, you are not going to wait for a 15% discount or a 20% discount and swim in your house until that occurs. So the discounting of those immediate demand states, the things that you need right now, you can get away with that a lot more.
[2:01 – 3:47] Strategic Positioning and Long-term Implications
So another example, pasta related, that I use is if you are Olive Garden. You have your “when you are here, you are family.” Those pieces of content are raising your brand equity. It is saying, hey, Olive Garden is a prestige brand that allows you to charge more and people feel better about that experience. On the other side, you have your soup, salad and breadsticks, you know, $10.99, and I think they discount it to, I am going to be wrong on the numbers here, but like $6.99 or something, soup, salad and breadsticks for lunch. And if you are constantly hitting customers with that $5.99, $6.99, whatever the value is there, then they are going to believe the product is that value, and then when you start charging $11 again, like that other example I had, you cannot really move back up. It is really moving down the stratification of where a brand sits in the marketplace. I use gyms as an example. You have your Equinox, which is like $200 a month, or $250, or whatever it is now. You have your New York Sports Club, and then you have your Planet Fitness in terms of cost.
And the problem is in the middle, you are not the cheapest and you are not the fanciest, so it is really hard to live in the middle. And when you discount, you are going from Equinox down to New York Sports Club in terms of price and positioning in the consumer’s head. And living in the middle is not something that a lot of brands do well or for a long time, unless it is a very nuanced industry, and I am sure I will get comments of counter examples. But for the most part, I would say that it is either you maintain premium status or you go for volume and commoditize your product efficiently. So I would say that that is pretty much the challenge with overdosing on promotions, and while effective, and while bringing revenue in the door right now, it could have long-term implications that really hurt a brand.
Key Lessons: Protecting Brand Equity From Promotional Overdependence
The commoditization trap: Constant discounting trains consumers to associate a brand with its lowest price, making it nearly impossible to raise prices later without damaging brand perception.
Industry-specific dynamics: Industries that rely on immediate, necessity-based demand, such as plumbing, are more resilient to discounting than those where consumers can stock up, like food manufacturing.
Brand positioning: It is significantly easier for a brand to move down-market by discounting than it is to recover a premium status once a lower value is established in the consumer’s mind.
Strategic balance: While promotions are necessary for short-term cash flow, CMOs must carefully calculate their potential impact on long-term brand equity to avoid irreparable positioning damage.
