From discount death spiral to growth engine: Rethinking incentives
Christoph Gerber, cofounder and CEO at Talon.One, says smart brands are transforming incentives from margin killers into growth engines—integrating loyalty, promotions, and data-driven rewards to drive sustainable profitability.
Executives today are talking about promotions more than ever, and not always fondly. Mentions of “promotions,” “discounting,” and “loyalty” have risen sharply across recent S&P 500 earnings calls, often in the same breath as “margin pressure.”
That tells you everything you need to know: Incentives have become one of the biggest, least controlled drivers of profit—and risk—for many modern brands. Yet the problem isn’t that companies use incentives. It’s that they use them badly. Too many are stuck in what we at Talon.One call the “discount death spiral,” relying on short-term tactics that drain margins and erode brand equity. Others run generic earn-and-burn loyalty programs that reward spend without strategy. Both approaches cost millions and generate little meaningful loyalty.
At Talon.One, we work with global enterprises the likes of Adidas, Joe & The Juice, Live Nation, and Sephora to help them connect loyalty and promotions into one unified incentives strategy—giving them the control and flexibility to make every reward more profitable. From this vantage point, one trend is clear: The world’s smartest brands are rethinking incentives as a growth discipline, not a cost of doing business.
The cost of bad promotions
Our analysis suggests that across industries, the average business discounts away 18% of its total revenue each year. That’s a staggering investment with surprisingly low returns.
Worse, promotions that don’t change customer behavior destroy value. With a 20% blanket discount, a company has to sell nearly twice as much just to break even. And since discount shoppers rarely return at full price, what looks like a short-term win often hides a long-term loss in profit and customer lifetime value.
It’s no surprise that promotions have become a boardroom issue, with investors and CFOs pressing for tighter guardrails.
Recent research we conducted in partnership with Harvard Business Review (HBR) surveyed more than 400 senior decision-makers on the topic. The findings highlight a shift:
- • Seventy-seven percent of companies now rank loyalty programs as a top strategic priority.
- • Sixty-six percent are working to improve the profitability of their promotions.
- • Sixty percent plan to integrate loyalty and promotions in the next year.
The takeaway is clear: Incentives are moving from quick-win tactics to long-term strategic growth levers.
Turning loyalty into a profit engine
The logic for doing so is simple: Loyalty mechanisms are far more efficient than deep discounts. Points, for example, are usually 10 times cheaper than a 20% discount—and because they often carry a deferred cost, they shift the financial impact to when the customer has already proven profitable.
Just as importantly, loyalty programs generate the data needed to personalize future offers. That means every promotion can be better targeted in the future—no more wasteful mass discounts that reward everyone equally, including customers who would have purchased anyway.
Many organizations tend to view promotions primarily as short-term price cuts that erode margins rather than as strategic tools that can build long-term value. A more disciplined approach treats promotions as opportunities to strengthen customer relationships and enhance brand perception. One effective tactic is offering exclusive gifts with purchase. When designed thoughtfully, these incentives can encourage shoppers, reward loyalty, and elevate the overall brand experience. Exclusivity adds to their impact—when an item can’t be bought outright, it becomes more meaningful and memorable to customers, helping deepen their emotional connection with the brand.
Why smart brands are “firewalling” their promotions
The most forward-thinking companies aren’t just integrating loyalty and promotions. They’re firewalling their promotions inside their loyalty programs.
This means promotions aren’t open to everyone—they’re reserved for members. By doing so, brands accomplish three critical things:
- 1. Contain cost exposure: Only a defined customer base can access high-value offers, reducing blanket discounting and protecting profit.
- 2. Reward behavior, not just spend: By linking promotions to loyalty status, brands can incentivize the actions that drive long-term value—store visits, referrals, engagement, feedback—not just purchases.
- 3. Strengthen the value exchange: When a customer feels part of a privileged community, the incentive shifts from “getting a deal” to “earning a reward.” That difference is subtle, but it’s what builds real loyalty.
This strategy is already visible among the world’s most admired brands:
- • Sephora ties most of its promotions to its Beauty Insider tiers.
- • Chipotle runs viral member-only buy one, get one (BOGO) events through its rewards platform.
- • Amazon delivers its biggest deals on Prime Day, exclusively for members.
From fragmentation to profitability
Our HBR research found that 97% of companies with integrated loyalty and promotions strategies report positive outcomes—most often improved profitability, higher retention, and stronger customer experience.
At Talon.One, we see this firsthand. When organizations connect their incentives under one roof, they unlock the ability to measure, control, and optimize every reward across its lifecycle.
The days of throwing discounts at the problem are over. The next wave of growth will belong to companies that turn incentives into strategy, aligning loyalty, promotions, and profitability into a single, disciplined framework.
Incentives marketing ensures every promotional dollar delivers real value—fueling loyalty, protecting margins, and creating growth that endures through uncertainty.
To learn more about Talon.One and incentives marketing, visit our microsite on incentives marketing.
Note: This content was created by Talon.One.