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 pushed. Yes, it can deliver the short-term topline or market share you need, but often at the expense of long-term value.

At Falcon, we approach promotional strategy with an owner’s mindset: create value over time, not just patch holes in the quarter. Still, we’ve spent long enough in FMCG to know how the target race hijacks decision-making. Don’t hate the player; hate the game. We hope this article can help you make more thoughtful decisions even when your back is against the wall.

Falcon's Promotional Framework

Our Framework: 3 Lenses to Pressure Test Your Promo Strategy

We challenge clients to look at three dimensions before pulling the promo lever:

1. The Shopper: How do shoppers behave in the category? What is the true incremental impact of your promotion?

   
   

2. The Market: What’s your share, positioning, and promo pressure?

   
   

3. Your P&L: Are your promotions creating shareholder value?

Let’s go deeper into each of them.

1. The Shopper: Understand Category Dynamics

   
   

Every category is different, not just in how it's shopped, but in how promotions perform. Here’s how to assess it:

• Impulse vs Planned Purchase In impulse categories (like chips), a promotion can attract new shoppers or increase consumption. In spices, that’s less likely. Many categories fall in between and suppliers often overestimate the impulse effect.

• Category Role If your category is a destination (like beer or coffee), it may attract retailer promo investment. But that also means your base sales are higher and cannibalization risk increases.

• Involvement Level High-involvement purchases (like baby care) often involve brand loyalty or research. A promo may not trigger switching but simply discount the same volume.

• Others: Purchase Frequency, Volume per Trip & Penetration High-penetration, high-frequency categories bring higher cannibalization risk. Use frequency, volume per trip, and penetration to decide promo depth and frequency.

2.   The Market: Position, Pressure, and Competitors

The market and brand dynamics play a big part in assessing the right promo pressure:

• Share & Role If you’re the market leader, you’re more likely to cannibalize yourself. Generally, leaders should protect category value. Challengers can move more freely.

• Promo Pressure Promo escalation can be a trap. Yes, you might win share short-term. But your competitors will catch up and your category value will drop. We advise to compare your promo pressure to your competitors. Break promotional pressure up in dept of deal on one side and frequency on the other. 

In some categories there is no way back and the volume on deal exceeds 50%. Baselines are low as consumer got used to promotions. In these cases, brands can use promotions as an effective tool to trade consumers up to more premium platforms.

• Tactical Disruption Not every category is strategic. In low-involvement, high-margin segments of your competitor, you might use promotions tactically to disrupt their P&L.

• Price Positioning & Elasticity Some brands are expensive on shelf but use heavy promos to remain competitive. Others are EDLP. Understand your price elasticity. Compare your average and shelf price indexes to the category average. If you’re already below your strategic price index, further discounts destroy more than they create.

• Brand Strength Do you have loyal shoppers? Is your proposition unique? Strong brands don’t need to discount as much.

• Channel Risk Wide distribution brings more risk of cross-channel cannibalisation. Think restaurants and bars buying their alcohol in retail instead of through horeca distributors. Sharp promotions can lead to downtrading in your own P&L.

3.   Your P&L: The True ROI of a Promotion

Let’s break down the real financial impact. Too often, promotional impact is measured with a narrow lens: "uplift vs baseline", without factoring in all the hidden effects that eat away at profitability. At Falcon, we believe in measuring the true value of a promotion, not just the top-line noise.

In listed companies, we often begin with turnover because that’s often KPI nr 1. In private companies, we flip the order and prioritize profit. Either way, our principle stays the same: promotions need to be profitable, or there needs to be a damn good reason why not.

Chasing topline or hitting market share targets doesn’t count as strategy. But we’re not naïve, we understand the pressures listed companies face. We just believe in being honest about the trade-offs.

Example of the full P&L of a promotion

Step 1 – What’s Your Real Baseline?

Start by estimating your non-promoted weekly turnover. It sounds simple, but it’s surprisingly tricky. Volumes fluctuate due to seasonality, external events, and competitor actions. A sunny weekend, a national holiday, a change in base price at your competitor, they can all throw off your baseline. Use averages across several comparable weeks. Better yet, group and assess similar promotions (depth, mechanic, season) to get a realistic benchmark.

Don’t cherry-pick your best promo ever and call it the norm. That’s not analysis; it’s self-deception.

Step 2 – Gross Promo Turnover vs Net Promo Turnover

In a promo week, your volume goes up, great! But what’s the real value of that spike?

• Gross Promo Turnover is your total turnover during the promotion week.

• Redemption is the % of that turnover that got discounted. This depends on: Promo mechanic (e.g. -25% on shelf vs 1+1), volume on deal, agreed investment method, forward-buy for on-invoice investments

Subtract the redeemed amount, and you get Net Promo Turnover. It’s a great start but this is where most teams stop. They celebrate uplift, run their ROI, and call it a win. In some cases, this could be true, in others there is a significant overestimation.

Step 3 – Cannibalisation Effects: The Hidden Killers of Promo ROI

Let’s say your promo week delivered a strong uplift. Nice spike in volume, great visibility. But did you actually sell more or just pull volume forward? Here are the three major cannibalisation effects most P&Ls don’t fully capture:

1. Forward-Buy by Consumers

In some categories, consumers don’t increase consumption. They just stock up. You don’t grow the pie. You just reshuffle the slices. This one is by far the most important one out of the three and the most difficult one to adjust for.

2. Retail/Channel Cannibalisation

Most shoppers visit multiple stores. If you promote heavily at Retailer A, you might just be shifting shoppers away from Retailer B, especially if you’re already market leader. That looks great in Retailer A’s dashboard. But not on your national P&L.

Worse still is what happens across channels. If your on-trade customers start sourcing stock through your retail promos, you’re not just cannibalising retailers, you’re trading down the entire value chain. That kind of leakage hits both your pricing integrity and profitability hard. Watch it closely.

3. Portfolio Cannibalisation

When you promote specific segments, sizes or sku’s you’ll cannibalize within your own portfolio. Your most profitable format (say 250g) gets cannibalized by a promo on a 1kg bag with lower margin and lower rotation. Now you’ve traded premium for volume. But value has eroded.

Step 4 – Factor It All In: A More Honest ROI

You won’t find these cannibalisation effects one on one in Nielsen. And building a perfect model would require extensive and costly research. This is where the first two parts of the framework: category dynamics and market positioning, really come into play.

Instead, we recommend a pragmatic approach: apply a general correction factor based on your understanding of the category.

You can go deep here and make this a highly complex model. We don’t advocate for that. What we do advocate for is more awareness. Too often, the impact of promotions is overstated while the long-term negative effects, like cannibalisation and margin erosion are conveniently ignored. And that’s where real value leaks out of the business.

From Insight to Action

At Falcon, we help our clients unfold their advantage. We don’t promote for the sake of it.

We don’t believe in overengineering either. No need for complex cannibalization models. But awareness is key. We want to challenge you to think more holistically when it comes to your promotional strategy. Far too often, the industry overstates the benefit and underplays the harm of promotions.

If you're planning your 2026 promo strategy and want to benchmark your thinking, we’d be happy to exchange ideas.

Reach out to:

jonas.geleyn@falcon-consulting.be

pauwel.nuytemans@falcon-consulting.be