For many consumer packaged goods (CPG) companies, promotions have become less of a strategic tool and more of a permanent business model. Weekly discounts, digital coupons, buy-one-get-one offers, and retailer-funded promotions are designed to drive short-term sales. But over time, they can create an expensive dependency that erodes profitability, weakens brand equity, and conditions shoppers to wait for the next deal. With inflation reshaping consumer behavior and retailers demanding more promotional support, CPG manufacturers face an important question: Are promotions still driving growth—or simply masking deeper problems?
Promotions Are Consuming Marketing Budgets
Trade promotions are among the largest expenses for CPG manufacturers. According to industry estimates:
- Consumer goods manufacturers spend 15% to 25% of gross sales on trade promotion activities.
- Trade spending often represents more than half of a manufacturer’s total marketing budget.
- Despite the investment, studies consistently find that more than half of trade promotions fail to generate a positive return on investment.
That means billions of dollars are spent every year on activities that produce little incremental profit.
Promotions Train Consumers to Delay Purchases
Frequent promotions change shopping behavior. Research has shown that consumers quickly learn promotional cycles and adjust accordingly. Instead of purchasing when they need a product, shoppers increasingly wait for discounts, coupons, or loyalty rewards. The result is:
- Lower full-price sales
- Reduced pricing power
- Increased promotional expectations
- Greater price sensitivity
Over time, consumers begin to associate value with the discount—not with the brand itself.
Margin Erosion Happens Faster Than Volume Growth
A common misconception is that increased volume automatically offsets promotional discounts. In reality, even modest discounts require substantial increases in unit sales to maintain the same profit dollars.
For example:
| Discount | Additional Unit Sales Needed to Maintain Gross Profit* |
|---|---|
| 10% | Approximately 20% more volume |
| 20% | Approximately 50% more volume |
| 30% | More than 100% more volume |
*Assumes a typical CPG gross margin of approximately 40%.
Few promotions generate this level of incremental demand. Instead, manufacturers often experience:
- Forward buying by retailers
- Pantry loading by consumers
- Cannibalization of future sales
- Lower average selling prices
The result is higher revenue but lower profitability.
Retailers Benefit More Than Brands
Retailers have become increasingly sophisticated in their use of promotions to drive store traffic and strengthen customer loyalty. For retailers, promotions:
- Increase basket size
- Improve shopper frequency
- Support loyalty programs
- Differentiate against competitors
For manufacturers, however, promotional dollars frequently subsidize retailer objectives rather than building long-term brand value. Without advanced analytics, manufacturers often lack visibility into which promotions genuinely drive incremental sales versus those that simply shift purchases between weeks.
Private Label Is Changing the Equation
Consumers have become more willing to purchase private-label alternatives, particularly following several years of elevated food and household prices.
According to industry research:
- Private-label sales continue to reach record highs in the United States.
- Many shoppers who switched during periods of inflation report satisfaction with store brands and have no intention of returning exclusively to national brands.
This creates a difficult cycle: National brands respond with additional promotions. Consumers become even more conditioned to buy only on deal. Margins shrink further. Private-label competitors maintain attractive everyday pricing.
The Hidden Brand Equity Problem
Constant discounting sends an unintended message. If a product is almost always on sale, consumers begin questioning its true value. Luxury brands have long understood this principle. Scarcity and pricing discipline reinforce brand perception.
While CPG operates differently, the same psychological principle applies: excessive promotions reduce perceived value. Strong brands command premiums because consumers believe they are worth paying for—not because they are perpetually discounted.
A Smarter Promotional Strategy
The solution is not to eliminate promotions altogether. Instead, leading CPG companies are becoming far more selective by:
- Using predictive analytics to identify high-return promotional events
- Personalizing offers through retailer loyalty data
- Focusing promotions on new product trial instead of habitual purchases
- Measuring incrementality rather than shipment volume
- Optimizing trade spending using AI-powered revenue growth management platforms
These approaches help companies invest promotional dollars where they generate genuine incremental demand, rather than simply subsidizing purchases that would have occurred anyway.
Promotions remain an essential part of CPG marketing, but dependence on constant discounting carries hidden costs. When promotions become routine rather than strategic, brands sacrifice margin, weaken pricing power, and diminish long-term equity.
The brands that will outperform over the next decade are unlikely to be those offering the deepest discounts. Instead, they will be the companies that use data, analytics, and consumer insights to deploy promotions with precision—creating profitable growth rather than temporary sales spikes.
In an increasingly competitive marketplace, the smartest promotion may simply be knowing when not to run one.
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