In-Store Promotions Explained: A Guide for CPG Brands

In-store promotions are essential for any CPG brand aiming to build visibility and drive sales. However, understanding how these promotions work—and the costs involved—can be complex. Here’s a straightforward breakdown of the three main types of in-store promotions, along with insights on when to use each.

Why In-Store Promotions Matter

Partnering with retailers to promote your products helps reduce the barrier for consumer trial, allowing customers to experience your brand at a discounted rate. Promotions also provide a valuable opportunity to test price elasticity and see how different price points affect sales. But managing in-store promotions can lead to unexpected costs if not handled carefully. Many brands lack the centralized tools or structure to track these events, which can result in unexpected chargebacks and cash flow challenges.

Understanding each type of in-store promotion—and the associated costs—can help you make smarter decisions and maximize your budget.

Types of In-Store Promotions

1. Off-Invoice Discounts

Off-Invoice discounts are straightforward: they’re deducted directly from an invoice with a distributor during specific promotional periods. These discounts are typically around 15% of the case price and occur a few times a year.

When to Use It: Off-Invoice deals work well with distributors as they’re cash-efficient and simple to execute. However, make sure you monitor that these discounts are reaching the retail shelf, as they don’t always translate directly to a consumer discount.

Watch Out For: Distributors may over-order during these promotional periods to take advantage of lower prices, a practice called “bridge buying.” Ensure you’re aware of your baseline demand to avoid excess inventory sitting in warehouses, leading to spoilage or cash flow issues.

2. Manufacturer Chargeback (MCB)

MCB promotions are deals where the retailer buys products from a distributor at a discount, which the retailer then passes to consumers. However, instead of simply covering the discounted amount, brands pay based on the distributor’s “wholesale” or “catalog” price. Since this price varies, MCB promotions are often challenging to estimate and manage.

When to Use It: MCBs are popular with retailers as they simplify promotions by involving the distributor. However, MCBs can be costly and may not always result in the desired on-shelf price for consumers.

Watch Out For: Verifying that MCB discounts reach consumers can be tricky without purchasing point-of-sale data, as brands only see cases sold from distributor to retailer, not individual sales. Whenever possible, opt for "Scan" promotions for greater transparency and control over final pricing.

3. Scan Promotions (Scans)

Scan promotions apply the discount at the point of sale, directly to the consumer. Discounts are generally shown as dollar amounts rather than percentages, giving the brand transparency on how discounts are applied. Scans also often come with supporting documentation showing actual sales to consumers.

When to Use It: Scans are generally the most efficient and transparent promotional option. They carry lower administration fees, and since they’re tied to end-consumer purchases, brands have a clear record of promotion effectiveness.

Watch Out For: Scans usually require collaboration with the retailer to access accurate POS data. However, they offer valuable insight into how well a promotion performed against baseline sales.

Strategy & Recommendations

A common mistake brands make is building their promotional strategy around a target trade spend percentage without verifying if their discounts result in the desired shelf price. This can lead to ineffective promotions, missed sales opportunities, and budget overruns.

For most CPG brands, the retail shelf price is one of the biggest factors driving sales volume. To maximize your promotions:

Start with a Target Shelf Price: Define the end price you want consumers to see and set that as your TPR (Temporary Price Reduction) target.

Work Backwards: Calculate how much of a discount is needed to hit that target price, then negotiate with retail and distribution partners.

Document Costs: List any additional fees tied to the promotion, and assess if the actual cost aligns with your goals and budget.

By focusing on these key types of promotions, brands can create a strategy that drives trial, boosts velocity, and builds brand visibility. Make sure you approach each promotion with a clear understanding of costs, a well-defined target shelf price, and a plan for tracking results.