In one line
A promotion's incremental sales are what it sold minus the baseline: what would have sold in the same weeks without it. To judge it, compare the extra gross profit, after the dip that follows, with what the deal cost.
What it does
- Step 1: estimate the baseline. Comparing with the weeks before the deal is quick and often wrong, because season, distribution and rivals move too. Analysts model the baseline from comparable weeks or stores without a deal, adjusted for season.
- Step 2: lift = actual sales ÷ baseline − 1. Incremental units = actual sales − baseline.
- Step 3: count the dip. Shoppers who stocked up buy less afterwards, so take the shortfall in the weeks after off the lift.
- Step 4: cost it. The deal's cost is the discount on every unit sold on deal, including units that would have sold at full price, plus any fixed fees to the retailer.
- Step 5: gross profit back per €1 = the extra gross profit over the deal and the weeks after, before the deal's cost, ÷ the deal's cost. Below €1, the deal lost money.
Business and brand
Impact on the businessP&L, cash, share price
- Studies that split the bump find that much of it is switching and stockpiling rather than extra category buying (van Heerde, Gupta and Wittink, 2003).
- A wrong baseline flatters or buries the deal: one run in a rising season and compared with the weeks before looks better than it was.
- Retailers judge a deal on their own category's profit, not on your brand's lift, so the same deal can pass one test and fail the other.
Impact on the brandMemory, loyalty, pricing power
- Deep and frequent deals raise price sensitivity (lesson 5).
- The baseline itself wears down when shoppers learn to wait for the next deal.
- The lift goes when the deal does: rented share.
Try it
Read a deal against the right baseline
Run one deal for half a quarter, in the second, third or fourth quarter of the lab year. Compare the lift against the quarter before with the lift against the true baseline: the same world without the deal.
| 1. Quick baseline: Q1 | 27.86 | +74% |
|---|---|---|
| 1. True baseline: Q2, no deal | 32.37 | +50% |
| 2. Sold with the deal | 48.49 | +16.11 |
| 3. The dip: Q3 vs baseline | 23.83 | −8.87 |
| 3. Net extra units, 3 quarters | +7.17 | |
| 4. On deal / would have sold anyway | 32.77 | 16.65 |
| 4. Deal cost (€m) | 8.19 | |
| 5. Extra gross profit before cost (€m) | +3.72 | |
| 5. Gross profit back per €1 | 3.72 ÷ 8.19 | €0.45 |
Units Brightwater sold to shoppers by quarter. The baseline rises and falls with the season; the line marks the deal quarter. Deal cost is the deal funding paid to retailers.
Notice: Against the quarter before, the deal looks like a +74% lift; against the true baseline it is +50%. Demand rose about 17% with the season between the two quarters, and the quick comparison credits the deal with it. Over the deal and the two quarters after, it returns €0.45 of gross profit per €1 of deal money: it lost money.
Runs Countermove's market engine: the reference soft-drinks market, three brands, rivals holding their plans so only your change moves the result.
Sources
- van Heerde, Gupta & Wittink (2003), Journal of Marketing Research: is 75% of the sales promotion bump due to brand switching? No, only 33% is
- Abraham & Lodish (1993), Marketing Science: an implemented system for improving promotion productivity using store scanner data
- Blattberg & Neslin (1990), Sales Promotion: Concepts, Methods and Strategies, Prentice Hall