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The Hidden Cost of Promotions

Updated: Oct 13

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In the hyper-competitive landscape of Fast-Moving Consumer Goods (FMCG), trade promotions are a cornerstone of commercial strategy. Companies worldwide invest, on average, a staggering 20% of their annual revenue in these activities—an expenditure that is often the second-largest item on the profit and loss statement. The assumption is simple: promotions drive growth.

However, a formidable body of evidence reveals a starkly different reality. A stunning 59% of trade promotions globally lose money. In the United States, the picture is even bleaker, with the failure rate climbing to 72%. This is not a minor inefficiency; it is a systemic misallocation of capital on a colossal scale.

The problem lies in an "illusion of uplift," where encouraging sales charts mask a series of value-destroying effects operating just beneath the surface. For decades, the industry has been guided by metrics that obscure rather than illuminate the true financial impact of promotional spending. This booklet will deconstruct that illusion. It will expose the hidden costs that turn seemingly successful campaigns into financial liabilities and outline a modern, data-driven framework for transforming promotions from a source of margin erosion into a powerful engine for profitable growth.




Chapter 1: The Illusion of Lift


The primary reason so many unprofitable promotions are repeated is a fundamental flaw in how success is measured. Most organizations rely on a simple "gross lift" calculation, comparing sales during a promotion to a baseline period. This approach is dangerously incomplete. It measures the mere presence of a promotion but fails to capture its true impact, routinely ignoring hidden costs like sales cannibalization and consumer stockpiling.

The only metric that truly matters is True Incremental Lift: the increase in sales that would not have occurred without the marketing effort. Anything else is an illusion created by shuffling existing sales.

To understand this, consider what really happens to every £100 of sales generated during a typical promotion. Accuris benchmark data from 2024 reveals a sobering picture:

  • £35 is from Subsidisation: Sales to loyal shoppers who would have bought the product at full price anyway.

  • £8 is from Cannibalisation: Sales stolen from other products in your own portfolio.

  • £2 is from Stockpiling: Shoppers buying more now, but less later.

  • £5 is from Retail Switching: Shoppers buying at this retailer instead of a competitor.

  • £44 is from Competitive Brand Switching: Sales won from your direct competitors.

  • £6 is from Category Expansion: Genuinely new sales from shoppers buying more or entering the category.

Only the last three sources—Retail Switching, Brand Switching, and Category Expansion—represent true incremental growth: Retail Switching and Category Expansion for the retailer and Competitive Brand switching and Category Expansion for the supplier. The rest is simply moving money from one pocket to another, often at a significant cost. By failing to distinguish between these sources, traditional metrics systematically overstate a promotion's effectiveness, rewarding activities that maximize gross volume at the direct expense of the bottom line.



Accuris Source of Business ® identifies those promotions that create sustainable growth for both suppliers and retailers.
Accuris Source of Business ® identifies those promotions that create sustainable growth for both suppliers and retailers.


Chapter 2: Uncovering the Hidden Costs


The disconnect between perceived and actual performance stems from specific, quantifiable financial drains that are invisible to traditional measurement systems. These "hidden costs" are the mechanisms through which seemingly successful promotions erode profitability.


1. Subsidisation: Paying Your Most Loyal Customers to Buy for Less

The most direct hidden cost is subsidisation: granting discounts to a brand's most loyal customers who were already planning to purchase at full price. Benchmark studies show that, on average, 35% of all sales on promotion are subsidized. These are not new sales; they are existing sales for which the company has needlessly sacrificed margin.

2. Cannibalisation: When Your Left Hand Steals from Your Right

Cannibalisation occurs when a promotion for one product simply shifts volume away from other, non-promoted items within the same brand portfolio. A consumer intending to buy a 12-pack sees the 24-pack on offer and makes the switch. The system registers a "lift" for the 24-pack but fails to account for the lost sale of the often more profitable 12-pack. On average, 12% of a promotion's uplift is offset by cannibalisation, with studies on pack-size promotions showing this figure can be as high as 22%.

3. Stockpiling: Borrowing Sales from Tomorrow at Today's Discount

Also known as "pantry loading," this happens when promotions induce consumers to buy sooner or in larger quantities, effectively pulling future full-margin purchases into the present at a discounted price. This creates a satisfying sales spike followed by a "post-promotion slump" as households consume their inventory. The net effect is not an increase in total consumption but merely a temporal shift in purchasing that directly harms profitability.

4. Downgrading: Encouraging Shoppers to Spend Less

While the goal is to encourage shoppers to "trade up" to more premium products, many promotions have the opposite effect. By heavily discounting mainstream or value-tier items, brands can inadvertently encourage shoppers who might have purchased a premium product to "trade down" to a cheaper alternative. This lowers the average selling price and erodes category value. The impact is significant: benchmark data reveals that 94% of all promotions fail to increase the overall value of the category.

5. Brand Erosion: The Slow Burn of Perpetual Promotions

Perhaps the most damaging cost is the long-term erosion of brand equity. Frequent and deep discounting trains consumers to devalue a product, lowering their internal reference price—their perception of what a product is "worth". Over time, the brand becomes associated more with discounts than with quality or innovation, creating a vicious cycle where ever-deeper promotions are needed to achieve the same apparent lift.




Chapter 3: The Root of the Problem


The persistence of unprofitable promotions is a systemic issue rooted in organizational structures and analytical capabilities. A primary driver is the intense pressure to meet short-term volume targets, which makes promotions the most immediate lever to pull, regardless of long-term profitability.

This is compounded by siloed decision-making, where sales, marketing, and finance teams operate with different goals and datasets, preventing a holistic view of financial impact. Many organizations also fall into the "Same As Last Year" (SALY) trap, rolling over promotional calendars with minimal strategic review, ensuring past mistakes are repeated.

Underpinning all of this is a deficit in analytical capability. Most companies measure promotional uplifts but falter when it comes to monitoring the corresponding sales declines elsewhere—for other pack sizes, brands, or even rival stores. Without the right tools to provide a clear, granular view of performance, managers are forced to make high-stakes financial decisions with incomplete and misleading information.




Chapter 4: The Accuris Solution: From Diagnosis to Action


Escaping this cycle requires a fundamental shift in capability—a shift that the world's leading FMCG companies have made by adopting a more sophisticated analytical approach. This is where Accuris, the original pioneer of the Source of Business® model, provides the solution. First developed for the Coca-Cola system in 1998, this framework has become the industry standard for promotion evaluation, and it remains the only methodology that measures the true origins of sales at a granular level: every product, every retailer, every week.


The Source of Business® framework moves commercial teams beyond the illusion of a sales spike to the reality of true profit. It precisely quantifies the hidden costs—like sales cannibalization and margin dilution—that are invisible to traditional metrics. Instead of vague assumptions, you get precise numbers you can trust.


This clarity allows you to surgically cut unprofitable activities and redirect that spend into what is proven to work: attracting new buyers, driving genuine category expansion, and winning share from competitors. The opportunity is concrete: stop the financial drain from your second-largest P&L expense and reallocate that capital to fund innovation, strengthen your brands, and build sustainable, profitable growth.


Leading firms use this clarity to:

  • Define and Execute Strategy: By understanding the distinct Source of Business® profile of different strategies—for instance, a "Big Bet" on a new product will rely heavily on competitive switching, while a "Must-Win Battle" for a core brand depends on protecting its loyal base—companies can align their promotional tactics with their highest-level objectives.

  • Drive True Category Growth: The framework identifies which promotions genuinely expand the category by encouraging shoppers to trade up to premium products or increase their overall consumption, providing a powerful, data-backed case to bring to retail partners.

  • Strengthen Retailer Negotiations: Armed with proof of true incremental value, manufacturers can move beyond contentious negotiations and co-create promotional plans that deliver a win-win for both the brand and the retailer.


It is this unique capability that explains why two-thirds of the world's top 20 FMCG multinationals, alongside numerous national champions, have chosen to work with Accuris.



As the original pioneer of the Source of Business® model, Accuris remains the only company accurately measuring and reporting these sources at a truly granular level – by product, by week, by promotion and by retailer, thanks to our patented-pending methodology based on Bayesian statistics. 
As the original pioneer of the Source of Business® model, Accuris remains the only company accurately measuring and reporting these sources at a truly granular level – by product, by week, by promotion and by retailer, thanks to our patented-pending methodology based on Bayesian statistics. 


Chapter 5: From Insight to Impact


The path to better promotions starts with a single step: diagnosis. Accuris projects are fast, practical, and collaborative. We take your data, run it through the Source of Business® framework, and deliver clear insights in days. Together, we translate those insights into concrete actions: which promotions to stop, which to scale, and where to invest differently.

The benefits are immediate and quantifiable. Companies using this framework have released up to 7% of net sales in incremental value—funding innovation, fuelling premiumisation strategies, and strengthening their position with retailers.

It is low risk and high impact. Start small—with one category, one retailer, one report. Prove the value, then expand. The hidden costs of promotions are real, but they are not unavoidable. With the right analytical partner, you can finally eliminate them.




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