How many promotions pay back? What BCG, McKinsey and Bain found

Most stores judge a promotion by whether orders went up. The research below asks a harder question: did the extra sales cover the cost of the discount? It comes from large retailers and consumer-goods makers, not small Shopify stores, and none of it tests an app.

BCG: many promotions do nothing, or lose money

BCG’s “How Retailers Can Improve Promotion Effectiveness” reports that “20 to 50 percent of promotions generate no noticeable lift in sales—or, worse, have a negative impact. Another 20 to 30 percent dilute margins in that they don’t generate an increase in sales sufficient to offset promotion costs.” The work is with brick-and-mortar retailers: supermarkets, discounters, drugstores and mass merchandisers.

It adds that most retailers “run thousands of promotions a year, past the point of diminishing returns,” and that retailers hold on to volume “primarily because they don’t know which ones are working.” BCG says its four-part approach to running “fewer, more effective promotions” can raise the margin on promotions by 2 to 5 percentage points. That is BCG’s claim about its own method, not a measured average.

A later BCG article, “Smarter Retailer Promotions for a Saturated Market,” says “From 30% to 40% of retail promotions not only are either inefficient or unprofitable, but also risk alienating consumers.” It also says “from 40% to 60% of promotions that retailers expect to generate high ROI ultimately result in low ROI,” based on BCG’s experience rather than a published sample.

McKinsey: the manufacturer side

McKinsey, citing Nielsen, writes that consumer-packaged-goods companies “invest about 20 percent of their revenue annually in trade promotions. Stunningly, 59 percent lost money (in the United States, it’s 72 percent).” These are manufacturers’ promotions run through retailers. They are not store-run online sales, so read this one as a sign of how common unprofitable promotions are, not as a figure for your store.

Bain: steep discounting and performance

Bain asked more than 30,000 US consumers what they look for in a soft goods retailer. “Having the best sales and promotions” ranked fifth in its survey. In children’s apparel, Bain compared retailers known for value and everyday low prices with the most promotional ones. The first group “outpaced the retailers that were most highly rated for sales and promotions, generating superior gains in stock price, revenue, and operating margin.” It is one category, and it shows a link, not a cause.

What these have in common

Three themes repeat. Promotions often go unmeasured: BCG points to “a lack of clear insight into which promotions are working—and why.” More promotions is not the same as better promotions. And clarity matters: BCG reports that “more than 70% of the consumers we surveyed said that they prefer a single, clear discount to multiple discounts that they need to combine.”

What to do this week

• For your last three sales, compare orders and margin with ordinary weeks, not revenue alone.
• Drop any sale that showed no lift, and repeat only the ones that paid back.
• Prefer one clear offer over stacked discounts.
• Keep a short record of each sale’s depth, length and result, so the next one starts from evidence.