Promotions have traditionally been a core lever for driving volume, acquiring new customers, and meeting revenue targets, particularly in the grocery and FMCG sector. While promotional sales might look successful, many retailers find themselves asking: Do we actually earn money from our promotions?
In a recent session of the Dynamic Pricing Community, I unpacked this exact topic. Drawing on years of experience in grocery pricing across Europe, I explain why traditional methods of measuring promotions often fall short and introduce a more comprehensive model to evaluate promotional effectiveness in grocery and consumables.
Why sales uplift isn’t enough
The most common method for evaluating a promotion is comparing the uplift in sales during the promotion window with sales in the surrounding weeks. While this offers a quick snapshot, this approach misses the whole picture.
For example:
- Are customers buying more overall, or just earlier (stockpiling)?
- Are they switching from other products in your assortment (cannibalization)?
- Are they visiting your store only for the promotion, without building long-term loyalty?
Without deeper analysis, promotions that appear successful may be eroding margin, diluting brand value, or distorting future demand.
A framework for understanding promotional impact
To address these gaps, I’ve introduced the concept of promotional uplift decomposition. This framework breaks down a promotion’s effects into distinct components, each of which needs to be measured separately. We slice the proverbial elephant.
Here are the 11 key effects that can contribute to a promotion’s impact:
- Primary demand – True incrementality: customers buying more of the product overall.
- New customer acquisition – Gaining shoppers who wouldn’t otherwise buy from you.
- Category switching – Moving spend from other products within the same category.
- Basket size uplift – Increasing the average transaction value.
- Halo effects – Positive cross-category impact, such as increased sales in related products.
- Stockpiling (acceleration) – Customers buying more now, reducing future sales.
- Deceleration – The sales dip following a promotion.
- Store switching – Customers shopping with you instead of competitors because of the offer.
- Cannibalization – Substitution of other products in your portfolio.
- Preemptive switching – Capturing demand before it reaches competitors.
- Customer lifetime value changes – Long-term shifts in customer behavior and loyalty.
Retailers that rely on a single “uplift” metric will likely overlook many of these effects, particularly negative ones like stockpiling and cannibalization.
Building a reliable baseline
Before measuring uplift, it’s critical to define what sales would have looked like without the promotion. This baseline can be built using several approaches:
- Simple moving averages – A basic benchmark using past sales.
- Regression models – More sophisticated, accounting for seasonality and external variables.
- Machine learning models – High-accuracy forecasts using multiple features, including price elasticity, weather, and marketing.
Once the baseline is established, retailers can calculate incremental uplift and begin isolating which effects contributed to the result.
Why many promotions underperform
One of the most common mistakes I’ve seen is overvaluing short-term uplift and failing to account for stockpiling or long-term deceleration.
For example, frequently discounted products like Pringles can create consumer habits where customers wait for promotions rather than buying at full price. This behavior drives artificial spikes and sustained dips, reducing both profitability and brand trust.
Moreover, without proper alignment across sales, marketing, and finance, teams often evaluate success using different, sometimes conflicting, metrics. A promotion that hits revenue targets may still reduce profitability or customer value if these effects aren’t measured together.
Learn more: Promotional Coupons: When $5 Coupons Sell More Than $25 Coupons
Tools for smarter promotion measurement
To capture a full view of promotional performance, retailers need data beyond simple sales reports. I recommend using:
- Loyalty card data – To track actual changes in purchase frequency and basket size.
- Invoice data – To understand purchase behavior before, during, and after a promotion.
- Market share data – To evaluate switching effects and competitive dynamics.
By combining these data sources, retailers can understand not only whether a promotion worked, but also why it worked.
What successful promotion strategies look like
Not all promotions are problematic. In fact, some tactics offer high effectiveness when used strategically. Retailers should consider:
- Targeted coupons – A smart way to segment pricing without training the entire customer base to wait for discounts.
- Private label promotions – These can offer margin advantages and strengthen loyalty, especially when halo effects drive spend in other categories.
- Cross-category uplift – Promotions that increase total basket size, rather than just shifting spend.
Seasonal events: Handle with care
One standout example from the session was Black Friday. Despite substantial sales numbers, Black Friday often results in a deep pre-promotional dip, followed by high return rates and margin pressure. When measured correctly, these factors make it one of the most expensive promotional periods.
Retailers should factor in:
- Return rates
- Customer acquisition cost
- Long-term brand value
- Post-event deceleration
Outlook for 2025: Promotions, inflation, and customer trust
One of the biggest challenges and opportunities for grocery retailers will be maintaining customer trust in the face of ongoing price sensitivity. Promotions can play a role in this, but only when deployed transparently and strategically.
These are my two key focus areas for 2025:
- Smarter coupon strategies that offer targeted value.
- Leveraging private brands to deliver value without compromising margins.
Retailers that master the art of measuring and managing promotional effectiveness will be best positioned to succeed in a low-margin, high-pressure environment.
Conclusion
Promotions are not inherently good or bad, but only effective if they create true value. Retailers that rely on outdated metrics risk missing the whole picture. As I have demonstrated, a deeper, more data-informed approach to promotions is essential to improving profitability.
About the author
As founder and managing director of the Price Management Institute, Markus has already helped dozens of retail & e-commerce companies optimize their pricing to increase financial performance.
His expertise is in demand among companies of all sizes — from medium-sized businesses to stock-listed global corporations.
Markus is also a sought-after speaker and author and participates in cutting-edge pricing research as a Senior Research Fellow and university lecturer.
His Handbook on the Psychology of Pricing is one of the best pricing books in the world, and his articles, interviews, and research results are published not only in leading academic journals but also featured in trade magazines and the general media.
