Pricing, Promotions, and Trade Terms: Stop Discounting Your Way Into Bankruptcy

TL;DR

Pricing isn't a number — it's a system. Build the margin waterfall, choose your shelf lane, use promotions as behavior triggers (not desperate discounts), and protect your pricing corridor across channels.

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The most dangerous sentence in FMCG isn't "we have competition."

It's: "Let's just discount it and see what happens."

I've watched brands with genuinely good products slowly train their market to ignore them—one promotion at a time. At first it feels like momentum. Sales spike. The team breathes. The graphs go up. Someone posts the results in the group chat with fireworks emojis.

Then the promo ends.

Sales drop below the old baseline. The next meeting happens. The next promo happens. Bigger this time. And slowly, quietly, the brand becomes dependent on discounts like a patient on oxygen.

By the time the founders realize what happened, it's too late:

• customers expect discounts
• retailers demand trade spend
• distributors ask for more margin
• and the brand's "growth" is actually a controlled burn of profitability

That's why pricing isn't a number. Pricing is a system. And in FMCG, if you build the wrong system, you can sell more and still die.

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1) Start with the shelf ladder: you're not pricing a product, you're choosing a lane

When a founder asks me, "What should we price it at?" my first question is never about COGS. It's about context.

Because shoppers don't judge your price in isolation. They judge it against the shelf around you.

Every category has a shelf ladder:

• Value/private label at the bottom
• Mainstream leaders in the middle
• Premium challengers above
• Super-premium niche brands at the top

Before you choose a price, you must choose your lane:

• Value lane — You win by affordability, simplicity, trust, and availability.
• Mainstream lane — You win by familiarity, consistent quality, and broad access.
• Premium lane — You win by quality, experience, functional benefits, or brand identity.
• Super-premium lane — You win by exclusivity, culture, and strong identity.

Here's the brutal truth: If your price lane and your product signals don't match, the shopper's brain flags you as risky.

Premium price with cheap packaging? Risk. Value price with complicated claims? Confusing. Mainstream price with unclear meaning? Forgettable.

Pricing is positioning.

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2) Build the margin waterfall (the anti-delusion tool)

If you're a founder, you can run a brand with imperfect branding, imperfect logistics, and imperfect social media. But you cannot run a brand with imaginary margins.

So you build the waterfall:

1. Shelf price (RSP)
2. Retail margin (often 25–40% depending on channel)
3. Distributor margin (if you use one; can be 8–20% depending on services/credit)
4. Trade spend (intro discounts, promos, marketing contributions, listing fees)
5. Your net revenue
6. COGS
7. Logistics and warehousing
8. Gross margin
9. Then your overheads

A common founder mistake is pricing based on: COGS + "what feels reasonable."

But the shelf doesn't care what feels reasonable. The shelf cares about the margin expectations of everyone in the chain. And the chain always wants more.

If your waterfall doesn't work, you don't have a pricing strategy. You have a future problem.

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3) Trade terms are hidden pricing (and they matter more than your shelf price)

Here's where FMCG gets sneaky.

Your "price" isn't just what's printed on the shelf tag. Your price is also the terms.

Trade terms include:

• payment terms (30/60/90 days)
• listing fees
• marketing contributions
• rebates
• returns policies
• expiry handling
• logistics penalties
• promotional funding commitments

A brand can have a healthy shelf price and still become unprofitable through terms alone.

I've seen founders celebrate getting into a large retailer, then realize: payment is 90 days, returns are generous, promos are expected, and trade spend is "normal practice."

Suddenly the brand is funding the retailer's business with its own working capital.

If you don't negotiate terms like they matter, you'll discover later that they mattered more than your product ever did.

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4) Promotions aren't discounts. Promotions are behavior triggers.

Promotions have jobs. Discounts without jobs create addiction.

A good promo does one of these:

• Trial — Get someone to buy for the first time (intro price, sampler, bundle).
• Stock-up — Increase basket size (multi-buy, family packs).
• Switching — Temporarily pull people away from competitors (TPR with strong visibility).
• Visibility — Earn displays and attention (promo mechanics tied to in-store execution).
• Seasonality — Align with occasions (summer, holidays, back-to-school).

A bad promo is "sales are slow, discount it." Because then you're not triggering behavior. You're begging.

And the market learns: "I'll buy later when it's cheaper."

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5) EDLP vs Hi-Lo: pick a philosophy or you'll drift into chaos

Retail pricing strategies tend to follow two philosophies:

EDLP (Everyday Low Price) — Stable pricing, fewer promos, trust and consistency.

Hi-Lo (High-Low) — Higher base price with frequent promotions to create spikes.

Many categories in modern retail lean Hi-Lo because retailers like promo events. But Hi-Lo requires discipline:

• promo calendar planning
• forecasting and inventory readiness
• post-promo analysis
• trade spend budgets

If you do Hi-Lo randomly, you create chaos: customers delay purchases, retailers demand more funding, and your baseline erodes.

Choose a philosophy. Then execute it consistently.

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6) Your first promo should not be your biggest promo

This is a classic early-stage mistake: A brand launches with a massive discount because they want "traction."

What they actually do is: lower perceived value, attract deal-hunters who don't repeat, and make it harder to sell at normal price later.

Instead, use smarter trial mechanics:

• starter bundles
• sampler packs
• small intro discount tied to a clear story
• value-add (free sample of another SKU)

In FMCG, the best customers are not the ones who buy once cheaply. They're the ones who buy repeatedly because they love it.

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7) Promo planning should look like finance, not improvisation

A promotion is basically an investment. Treat it like one.

For each promo, define:

• the goal (trial, stock-up, visibility)
• the mechanic (TPR, multi-buy, bundle)
• the expected uplift (units)
• the cost (trade spend + margin loss)
• the execution requirements (displays, flyer, online feature)
• the ROI measure (incremental sales and repeat)

After the promo, measure:

• incremental volume vs baseline
• cannibalization (did you just pull sales forward?)
• repeat purchase after promo
• profit impact

If you don't measure this, you'll keep repeating unprofitable promos because they "felt good."

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8) Protect your pricing corridor across channels (or your brand becomes a mess)

If you sell across retail, D2C, and marketplaces, you must control price coherence.

Nothing destroys trust faster than:

• seeing your product cheaper online than in-store
• watching unauthorized sellers dump your product on marketplaces
• constant discounting that makes the product feel like it's always "on sale"

A simple principle: Use bundles to create value online instead of undercutting single-unit prices.

Bundles raise AOV and protect your shelf price image.

A stable pricing corridor protects: retailer relationships, brand equity, and customer trust.

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9) Stop confusing "volume" with "profitability"

FMCG loves volume. Retailers love volume. Distributors love volume. But volume without margin is how brands die.

A healthy business does not chase revenue. It chases contribution margin: revenue minus variable costs (COGS, logistics, trade spend, fulfillment).

If you're losing money per unit, scaling only scales the loss. That sounds obvious, yet it's one of the most common FMCG deaths.

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10) Build promo mechanics that protect margin

Instead of always "20% off," use mechanics that increase basket size, create repeat behavior, reduce CAC (online), and protect perceived value.

Examples:

• "buy 2 get 1"
• starter bundles with modest discount
• free gift with purchase
• subscription discount (for replenishable categories)
• "limited edition" bundles that feel like a reward, not desperation

The best promotions don't feel like the brand is struggling. They feel like the brand is giving the customer a smart reason to act now.

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Common mistakes (that feel normal until you look at your bank account)

• pricing based on COGS instead of shelf ladder + margin stack
• giving away margin in trade terms
• discounting to fix slow sales
• running random promos with no plan or measurement
• undercutting retail online
• paying for visibility without enforcing execution
• chasing volume while contribution margin collapses

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FMCG by Alex: the pricing rule

If I had to summarize pricing strategy in one sentence:

A discount is not a strategy. A pricing system is—one that protects margin, builds trust, and uses promotions as investments, not crutches.