Promotion Effectiveness

Effectiveness is a different question from forecast accuracy: a promotion can be forecast precisely and still lose money. The evaluation has three layers. Volume shows how many extra units were sold. Margin shows whether those units paid for the discount given on units that would have sold anyway. Return on investment adds the cost of the promotion itself – leaflet space, displays, media – and the supplier funding that offsets it.

• True incremental sales = promotional sales − baseline − cannibalized sales of substitutes − post‑promotion dip
• Incremental margin = margin earned during the promotion − margin the baseline would have earned at regular price
• Promotion ROI = (incremental margin − promotion costs) / promotion costs, with supplier funding counted in the promotional margin

Promotion effectiveness in practice

The discount is paid on every unit sold, including the baseline. An item with a regular price of 100, a purchase cost of 70 and a baseline of 100 units a week earns a weekly margin of 3,000. At 20% off, the unit margin falls to 10, so the promotion has to sell 300 units – three times baseline – just to earn the same margin, before any cannibalization is deducted. A report showing +150% volume can therefore describe a promotion that lost 500 in margin. That is why the evaluation is made in margin and across the category, not in units of the promoted item.

The second trap is the comparison base. Where customers know the leaflet cycle, the week before a promotion is weaker because they wait for it, and the weeks after it carry the dip from customers who stocked up. Comparing the promotion week with either of them inflates the result. The base is the baseline estimated for the same weeks, cleaned of stockouts and other promotions. Evaluation also closes the planning loop: items and mechanics that repeatedly fail to pay for the discount belong out of the leaflet, not back in it with a deeper cut.

Veritico PROMO compares actual sales with a calculated baseline, taking cannibalization, halo and the post‑promotion dip into account, and ranks candidates for the next leaflet by their historical performance in selected KPIs. At METRO, Veritico PROMO cut the leaflet by 25% without reducing sales, and profit on featured items rose by 3%. See uplift and cannibalization, discount optimization, the PROMO module and the METRO case study.

Related terms

• Promotion Planning
• Promotional Forecasting
• Baseline Demand
• Halo Effect
• Sales Cannibalization
• Sales Uplift