This page is for a buyer or retail planner sizing a promotion, and for a factory asked to help fund one. At work, a person can run a promotion and only see that stock moved faster, without checking how many units would have sold at full price anyway with no discount at all. This lesson mainly teaches the money flow: it works out, using Order A's own fixed shop price, exactly when a promotion's own extra volume is worth more than the full-price margin it gives up.
A promotion differs from a markdown covered in the last lesson: it runs while a style's own sell-through is still on plan, to build extra volume, not to react to a shortfall. Fairway Stores runs a short promotion on Order A mid-season, and Meridian Sourcing then asks Delta Garments, the factory, to cut its own FOB price on a small reorder to help fund it. Without this skill, a buyer cannot tell a promotion that grew the season's own profit from one that merely gave away margin, and a factory cannot judge a price request from a promotion it had no part in planning.
You need: lesson T20-C04-L01, which shows how a buyer judges whether a style's own pace of sale needs a markdown.
By the end of this lesson you can:
Not covered here: what a style's own terminal stock says about a season's original plan, covered in the next lesson of this course (lesson T20-C04-L03).
| Term | Meaning |
|---|---|
| Markdown | A reduction in the shop price of goods that have not sold as forecast, used to clear the remaining stock. |
| Sell-through rate | The share of stock actually sold within a planned period, used to judge whether a forecast was right. |
| Margin | Profit divided by the selling price, shown as a percentage of what a company sells for. |
| FOB (free on board) | The factory delivers the goods on board the ship at its own port. Freight from there is the buyer's cost. |
| Wholesale price | The price a brand charges when it sells the finished goods on, for example to its own retail arm or another retailer. |
Not every unit a promotion sells is a unit that would not have sold otherwise. Some units are incremental, sold only because of the discount, in a window they would not otherwise have sold in. Other units are cannibalized: they would have sold at full price anyway, in that same window, and the promotion simply moved them to a lower price for no real gain in volume. A promotion adds real profit only when the incremental units' own profit is greater than the full-price margin given up on the cannibalized units.
A buyer or factory meets several shapes of this decision across a normal working year, and each depends on the order's own booking and who bears the cost.
| What can differ | The shapes you will meet | Why it matters |
|---|---|---|
| Export order, hybrid pre-booked and replenishment | Fairway Stores runs a short promotion on Order A mid-season while its own sell-through is still on plan, and the promotion's own reorder can draw on the hybrid order's own remaining replenishment volume. | A hybrid order gives a buyer stock already planned for replenishment to use for a promotion, without a fresh production order. |
| Domestic Make to Stock style promoted ahead of a competitor's own sale | A domestic buyer such as Cedar & Co. runs its own short promotion to build volume before a rival's own sale date, while its own sell-through is still healthy. | A domestic promotion is timed against the market calendar, not against a hybrid order's own replenishment schedule. |
| Factory asked to fund part of a promotion through its own wholesale price | Meridian Sourcing asks Delta Garments to cut its own FOB price on a reorder to help fund Fairway Stores' promotion. | A factory's own wholesale price is agreed separately from a retailer's own promotion; a factory can decline to subsidize a retail-side decision it had no part in planning. |
| A promotion timed too close to a style's own natural markdown point | A promotion run only a week or two before a style would need its first markdown anyway risks discounting stock twice in quick succession, confusing the two events. | Running a promotion and a markdown close together makes it hard to tell which discount actually cleared which stock, and can double-discount the same units. |
Fairway Stores plans to sell Order A's 15,000 pieces evenly across its own 10-week season, an average pace of 1,500 pieces a week. Mid-season, while sell-through is still on plan, it runs a 3-day promotion at 10% off the USD 19.90 shop price, a sale price of USD 17.91. In a normal 3-day window, Fairway Stores would expect about 600 pieces to sell at full price on its own usual pace. During the promotion, 1,500 pieces actually sell: 600 of those would have sold anyway at full price, and 900 are extra volume the discount itself pulled in.
The promotion adds USD 7,725 to Fairway Stores' own profit, because the profit earned on the 900 genuinely new units is far greater than the margin given up on the 600 units that would have sold at full price without any discount at all.
The methodA common mistake is treating every unit a promotion sells as a win, without checking how many of those units would have sold anyway at full price. What this costs a buyer who gets it wrong is a promotion that looks successful on total volume but actually reduces the season's own profit, because the margin given up on cannibalized units outweighs the profit the truly incremental units add. A related mistake is assuming that a deeper discount, at the same total volume, adds the same profit as a shallower one; it does not, because a deeper discount gives up more margin on every cannibalized unit for no extra incremental gain.
A promotion is worth running once the profit its new sales add is greater than the margin given up on sales that would have happened anyway at full price. Not every unit a promotion sells is a real gain: some are incremental, genuinely new, and some are cannibalized, pulled forward from sales that were already coming. A promotion that looks successful by total volume can still shrink a season's own profit if the cannibalized share is large or the discount is deeper than it needs to be. A factory's own wholesale price is a separate matter from a retailer's promotion, and a factory can decline to fund a retail decision it had no part in planning.
To restock the 900 incremental pieces Order A's promotion sold, Meridian Sourcing asks Delta Garments for a 900-piece reorder. It also asks Delta Garments to cut its own FOB price by USD 0.20 a piece on this reorder, to help fund the promotion's own discount.
Here is the request Meridian Sourcing actually sent Delta Garments:
Should Delta Garments accept the full USD 0.20 cut on this reorder? Decide before opening the answer.
No, not the full cut. Two facts already in the request decide this.
First, Fairway Stores' own promotion discount is already fully funded from its own retail margin. The USD 1.99 a piece given up on cannibalized units, and the profit added by incremental units, both happen entirely inside Fairway Stores' own shop price; nothing about the promotion's own arithmetic requires a change to Delta Garments' wholesale price at all.
Second, a USD 0.20 cut removes most of Delta Garments' own planned profit on the reorder. Profit per piece would fall from USD 0.26 to USD 0.06, a reduction of 77%, for a promotion Delta Garments had no part in planning and does not share in the upside of if it succeeds.
Delta Garments should decline the full USD 0.20 cut. It may still choose to offer a smaller accommodation if the ongoing relationship justifies it, but the promotion's own funding belongs inside Fairway Stores' own retail margin, not the factory's wholesale price.
Accepting the full cut would cost Delta Garments USD 180 of its own planned profit, for a promotion it had no part in planning. Going to 20% instead of 10% would cost Fairway Stores USD 2,985 of its own profit, for the same volume sold.
Open the course workbook's "Promotion depth" sheet. It records the promotion window's normal-pace estimate and actual sales, calculates the incremental and cannibalized split, and works out the net profit the promotion adds at any given discount depth, so a buyer never has to size a promotion by feel alone.
[Download the Markdown and terminal stock worksheet](../../templates/T20-C04-markdown-and-terminal-stock-worksheet.xlsx)
1. A domestic style normally sells 200 pieces a day. During a 2-day promotion at 15% off a USD 24.00 shop price, 900 pieces sell. How many pieces are incremental?
2. Why can a deeper promotion discount, selling the same total volume, add less profit than a shallower one?
| EN | AR | FR | TR | Meaning |
|---|---|---|---|---|
| Markdown | تخفيض السعر | Démarque | İndirim (markdown) | A reduction in the shop price of goods that have not sold as forecast, used to clear the remaining stock. |
| Sell-through rate | معدل البيع الفعلي | Taux d'écoulement | Satış oranı | The share of stock actually sold within a planned period, used to judge whether a forecast was right. |
| Margin | الهامش | Marge | Marj | Profit divided by the selling price, shown as a percentage of what a company sells for. |
| FOB (free on board) | تسليم على ظهر السفينة في ميناء المصنع | FOB (franco à bord) | FOB (gemide teslim) | The factory delivers the goods on board the ship at its own port. Freight from there is the buyer's cost. |
| Wholesale price | سعر الجملة | Prix de gros | Toptan fiyat | The price a brand charges when it sells the finished goods on, for example to its own retail arm or another retailer. |
You now know how to size a promotion so its own extra volume outweighs the full-price sales it pulls forward. The next lesson looks at what a style's stock still unsold at the end of a season says about the season's own original plan. Back to the course map