Promotions: The Cocaine of FMCG

This is the fifth article in our Annual Business Planning (ABP) series, and we're diving into the most addictive lever in FMCG: promotions. When forecasts slip, panic sets in and the promo button gets hit — again. Sound familiar?

Promotions are like cocaine. They deliver a short, sharp high. Volume spikes. The retailer is happy. Your sales team looks like heroes — for a week. Then reality hits. The pantry is loaded, the consumer doesn't buy again for a month, your net revenue is down, and your promo budget is gone.

Yet most teams keep doing it. Because the alternative — holding the line, building a plan, taking a short-term hit for long-term health — feels harder and riskier than the quick fix.

Why promotions are addictive

The appeal is obvious. Promotions generate immediate, measurable volume. They make retailer conversations easier. They fill gaps in the forecast. They give sales teams a tool when everything else feels out of control.

But the structural problem is this: promotions borrow volume from the future. The consumer who bought three packs on deal won't be back next week. You've pulled forward demand, not created it.

Over time, heavy promotion trains the consumer to wait for the deal. Your regular price becomes the "sucker price." Penetration suffers because the consumer who only buys on deal never becomes a loyal, full-price buyer.

And the P&L damage is often invisible. Most teams calculate "promo ROI" on incremental volume only — ignoring the base volume sold at the lower price, the retailer margin top-ups, the logistics cost of spikes, and the cannibalization of other SKUs in the range.

The real cost of a promotion

When you run a 20% price reduction on a product with a 40% gross margin, the math is brutal. You need 2× the volume just to break even on gross profit. Most promotions don't come close.

A full P&L view of a promotion includes:

• Net revenue impact: the price reduction, multiplied across all units sold (not just the incremental)
• Retailer investment: any listing fees, catalogue support, or in-store visibility costs attached to the deal
• Supply chain costs: production inefficiencies, transport peaks, warehouse strain
• Cannibalization: volume lost on adjacent SKUs in your own range
• Forward-buy: retailer stock-up that inflates short-term sell-in but not real consumer sell-out

When you model all of these, many promotions destroy value. The ones that work are tightly targeted, generate genuine trial or penetration, and have a clear consumer mechanic — not just a price cut.

Building a smarter promo plan

The starting point is to audit your current promotional activity. For each promotion in the past 12 months, calculate:

1. Total volume sold at promoted price (not just incremental)
2. Gross profit before and after
3. Retailer investment attached
4. Post-promo volume dip (the hangover effect)

Most teams are shocked by the results. A significant portion of their promo calendar — often 30–40% — is destroying margin with no lasting consumer benefit.

The goal is not to eliminate promotions. It's to run fewer, better ones — with clear objectives, proper P&L visibility, and a consumer rationale that goes beyond "the buyer asked for it."

From there, build a promotional framework that defines:

• Which products should be promoted (and which should never be)
• What mechanics deliver your objectives (price, multi-buy, gift with purchase, trial packs)
• What investment levels are acceptable per unit of incremental volume
• What the post-promotion tracking process looks like

The Falcon framework

At Falcon, we use a three-lens filter before approving any promotional activity:

Lens 1 — Strategic fit: Does this promotion support your brand positioning and long-term growth agenda? A premium brand running deep discounts every four weeks is undermining its own equity.

Lens 2 — Financial viability: Does this promotion generate a positive return on a full P&L basis, including all costs? If not, what volume would you need to break even — and is that realistic?

Lens 3 — Consumer value: Does this promotion create genuine value for the consumer — trial, accessibility, habit formation — or are you just subsidising a purchase that would have happened anyway?

Only promotions that clear all three lenses make it into the plan. The rest get redesigned or cut.