Retail Pricing and Trade Glossary: Key Terms Defined

This glossary defines the core terms behind modern retail pricing, promotions, markdowns, and trade collaboration — in plain language, so each definition stands on its own.

Pricing terms

Price optimization

Price optimization is the use of demand science to set the price that best meets a business goal — margin, revenue, units, or price image — for each item, store, and time. Rather than applying a fixed markup, it models how shoppers respond to price and recommends the level that produces the intended outcome.

Base price

Base price, sometimes called the everyday or regular price, is the standing shelf price of an item when it is not on promotion. It anchors a shopper's perception of value and serves as the reference point from which promotional discounts and markdowns are measured. Getting base price right is the foundation of any sound pricing strategy.

Key Value Item (KVI)

A Key Value Item is a product shoppers watch closely and use to judge whether a store is expensive or fairly priced — staples like milk, eggs, or bananas. Because KVIs shape overall price image out of proportion to their sales, retailers price them sharply and often, accepting thin margins to protect trust across the whole basket.

Price elasticity of demand

Price elasticity of demand measures how much the quantity sold changes when price changes. Elastic items lose significant volume when prices rise; inelastic items barely move. Estimating elasticity per item, store, and season is central to pricing science, because it reveals where a retailer can raise price without losing shoppers — and where it cannot.

Demand modeling / demand science

Demand modeling, or demand science, is the discipline of predicting how shoppers respond to price, promotion, and assortment using historical sales data and statistical models. It quantifies elasticity, cannibalization, and seasonality so retailers can forecast the outcome of a pricing decision before making it. DemandTec has built on 25+ years of demand science, reaching 90%+ forecast accuracy.

Zone / localized pricing

Zone pricing, or localized pricing, sets different prices for the same item across groups of stores based on local demand, competition, and cost. A store in a competitive urban market may price differently than one with less nearby competition. Localization captures margin where shoppers will pay more and stays sharp where they will not.

Rules and constraints

Rules and constraints are the business guardrails a pricing system must respect — minimum margins, price gaps between sizes or brands, ending-digit conventions, and legal limits. They ensure that optimized prices stay sensible and consistent across the assortment. Good pricing balances the mathematical optimum against these constraints so recommendations are both profitable and executable.

Promotion & markdown terms

Promotional pricing

Promotional pricing is a temporary reduction from base price meant to drive short-term volume, traffic, or trial — a weekly special, a multi-buy, or a featured ad price. Effective promotional pricing weighs the incremental sales it generates against the margin given up and the volume that would have sold at full price anyway.

Promotion optimization

Promotion optimization uses demand models to decide which promotions to run and how — the price, depth, timing, and products that deliver the best return. It accounts for cannibalization, pantry-loading, and forecast lift to separate promotions that genuinely grow the business from those that only shift volume forward or sideways.

Trade funds

Trade funds are the money a CPG supplier provides to retailers to support promoting and merchandising its products — allowances, feature and display funds, and temporary price reductions. They can be structured as off-invoice discounts, bill-backs, or accruals, and represent a large share of a supplier's spending, which makes their return a closely watched number.

Markdown optimization

Markdown optimization determines the timing and depth of price reductions for products being cleared — seasonal, perishable, or end-of-life inventory. It balances the goal of selling through remaining units by a deadline against recovering as much margin as possible, recommending when to cut price and by how much rather than discounting on a fixed schedule.

Sell-through

Sell-through is the share of received inventory sold within a given period, expressed as a percentage. It signals how well demand matches supply: low sell-through warns of overstock and looming markdowns, while high sell-through may point to lost sales from being understocked. It is a core metric for markdown and inventory decisions.

Trade & collaboration terms

Trade promotion management (TPM)

Trade promotion management is the system and process for planning, executing, and settling trade promotions between suppliers and retailers. It tracks promotional events, trade funds, the calendar, and the reconciliation of claims and deductions. TPM is the operational system of record — it documents what was agreed and paid, but does not decide whether a promotion was worth running.

Trade promotion optimization (TPO)

Trade promotion optimization is the analytical layer that decides which trade promotions to run and how, using demand science to forecast return before funds are committed. It estimates incremental lift, cannibalization, and profit contribution, then recommends the events worth funding. TPO improves the decision; trade promotion management handles the execution that follows.

Trade spend

Trade spend is the total investment a CPG supplier makes to promote and merchandise its products through retailers — feature, display, temporary price reductions, and allowances. Often the second-largest line on a supplier's P&L after cost of goods, its efficiency matters enormously: roughly 72% of trade promotions never break even.

Commercial Trade Intelligence (CTI)

Commercial Trade Intelligence™ is the operating layer where retailers and their CPG and broker partners work from one shared data model — a bilateral approach to trade. The same deal a supplier funds is the one the retailer prices and executes, replacing single-sided systems that reconcile after the fact with a shared record both sides can trust.

Deductions / reconciliation

Deductions are amounts a retailer subtracts from a supplier's invoice to claim promotional funds, allowances, or disputed charges. Reconciliation is the process of matching those deductions to agreed promotions and settling any differences. When both sides plan against separate data, deductions multiply and disputes follow; a shared deal record shrinks both by removing the mismatch at the source.