A discount gives up contribution on customers who would have paid the original price. The extra volume must cover that loss before the offer creates value. This chapter turns the calculation into a routine part of pricing and campaign reviews.
Use marginal costs for the decision, account for capacity constraints, and leave sunk spending out of the calculation. For targeted offers, compare contribution per eligible customer against a control group. Higher redemption alone does not establish that the campaign earned more.
Put it to work
Take a recent discount campaign. Estimate contribution per targeted customer in the offer and control groups, including offer cost. Separately calculate the volume needed to preserve contribution if the same discount were applied to every sale.
A question to try
How many discounted buyers would have paid full price without the offer?
