The discount is approved

The discount is approved. The volume comes in. Profit does not always follow – and sometimes it deteriorates.

That is the uncomfortable problem with trade spend.
Individually, many commercial decisions look reasonable. A competitor offers better terms. A dealer needs support. A retailer asks for a scheme. A region wants to protect volume.

The issue starts when these decisions become a collection of local reactions rather than a governed commercial investment. Many companies spend 8 to 11 percent of revenue on trade incentives: rebates, dealer bonuses, retailer schemes, volume slabs and tactical discounts. The intent is usually clear: protect the channel, defend share, support growth, or respond to competitive pressure.

But the financial question is often less clear.
Did the incentive create incremental growth, or did it subsidize volume that would have happened anyway?

Did it strengthen the channel, or did it make partners more dependent on payouts? Did it protect price discipline, or did it quietly reset the market’s view of value? This is why trade spend should not be managed as a discount budget.
It should be governed as a commercial investment portfolio, with clear expectations on return, risk, and incrementality.

A baseline matters. Without it, the company cannot tell whether it bought new demand or simply paid extra for demand it already had.
A sales increase is not always profitable growth. Sometimes it is revenue subsidized by the company itself. The real issue is not only how much was spent. It is what behaviour the spend actually drove.

That requires scheme-level discipline: a baseline before launch, payout conditions tied to incremental behaviour, channel margin visibility, and post-scheme ROI review.

Without that discipline, the spend keeps going out – and the return stays invisible. Sales sees activity. Finance sees cost. The business needs to see return.

Inspired by:
McKinsey & Company – Reimagining trade spend: From cost center to growth catalyst