Does demand forecasting for promotions have to be this cifficult?

Jul 21, 2015 2 min

In my last blog post I wrote about the top challenges in demand forecasting, this time we’re looking at the topic of forecasting for promotions in more detail.

Demand forecasting for promotions is a major challenge for retailers, not least because of the impact it has on driving sales. With it generally accepted that better forecasting means improved cost-effectiveness and availability in the supply chain, retailers can benefit greatly by applying this to promotions.

For example, in the UK grocery market, as much as a third of all sales are promotion driven. The impact of price promotions on sales has become ever more important to the extent that they often play a dominant role in profit generation and really drive consumer behavior, which is of course exactly what they are designed to do. A successful promotion can pump up sales volumes and even have an impact on the sales of other lines.

However, with a successful promotion comes the fluctuating and unpredictable pressure on the supply chain that can cause considerable spoilage or reduced availability. With this in mind, if you’re not including promotions within the forecasting process, one of the most critical and impacting aspects of your business is excluded from your core processes.

Although forecasting for the unknown future can be difficult, solutions are out there. It is entirely feasible to calculate promotion demand forecasts using your past sales data with a considerable degree of accuracy – especially if you are willing to take on the task of collating data from promotions such as display details, promotion related advertising, the promotion price and the nature of the offer.

What follows is significant improvements in cost and time efficiency across the whole supply chain. Being able to predict promotion demand means boosted forecast accuracy to improve both promotion item availability and cut down on excess stock. This consequently leaves room for further promotions and thus a more economic continuation of enhanced sales.

Sadly, many retailers continue to run promotions, forecasting and replenishment all as a separate process. Promotion forecasting is an area ripe for improvement and the options are there to achieve this. With good processes and technology, retailers can continue to exploit the benefits of promotion without the challenge of forecasting tarnishing it.

Read more on the art of promotion management in our whitepaper: Better Promotion Management in 4 Steps.

Written by

Mikko Kärkkäinen

Co-founder & Group Chief Executive Officer