Promotion Effectiveness Analysis

Overview

Promotion Effectiveness Analysis provides a rigorous framework for evaluating whether trade promotions and temporary price reductions generate profitable incremental volume or simply subsidize sales that would have occurred anyway. In CPG, trade promotion spending represents 15–25% of gross revenue—the second-largest line item after COGS—yet industry studies consistently find that 50–70% of promotions fail to break even.

This skill decomposes promotional volume into its true components (incremental vs. cannibalization vs. pantry loading vs. pull-forward), computes ROI using multiple methodologies, and provides actionable recommendations for optimizing the promotion calendar.

When to Use

• Post-promotion analysis: evaluating a completed promotion's effectiveness
• Promotion planning: forecasting expected lift and ROI for a proposed promotion
• Annual trade fund optimization: reallocating promotion budgets across brands, categories, or tactics
• Comparing promotion tactics: TPR vs. BOGO vs. display vs. digital coupon vs. bundle
• Evaluating promotional dependency: determining if a brand is over-promoted
• Retailer-supplier joint business planning requiring promotion performance evidence

Required Inputs