Understanding promotional planning: definition and issues
To be accurate and effective, sales forecasting cannot simply take into account ongoing sales or overall quarterly or annual sales. Seasonality and various promotions throughout the year can greatly influence the amount of products sold and the value earned.
Promotional sales forecasting therefore has a crucial role to play in helping companies better manage their inventories, anticipate their revenues, adjust their production, etc. Aware of these issues, you would like to improve your promotional sales forecasting? First of all, you will have to understand what this process consists of and what are the opportunities and risks of setting up a promotional offer planning!
What is promotional offer forecasting?
Almost all stores and e-commerce sites have a promotional strategy at certain key times, and this is especially true in the B2C market. The reasons why companies offer discounts are varied: attracting new customers, retaining existing customers, clearing out stock, etc. Promotions are therefore a crucial issue for the sustainability and development of many companies.
Nevertheless, these special offers can also represent a bias in the overall sales forecasting process. In other words, since they are one-off or even exceptional operations, they cannot be integrated as they are into the generic historical prediction data, especially if they are very variable from one year to the next.
This is why companies are putting in place promotion forecasting methods: they are only interested in the products promoted over a given period of time, to try to anticipate the number of sales that will result from the promotion, and the value that this will generate. In addition to this "simple" forecasting, there are other very important financial, sales and marketing data to consider. This includes a number of comparisons between the business results with and without the promotion: evolution of the number of sales, evolution of the margin rate, number of new customers, average purchase basket, etc.
Why implement this type of forecast?
Promotional sales forecasting is a real asset for the many links in the company chain, from production to final sale. The ultimate goal is to ensure the development and profitability of the company, by generating more revenue and reducing costs.
Anticipating product inventory
As with the global sales forecast, the purpose of the promotions forecast is to facilitate logistics management, particularly in order to have an optimal stock of products. This seems essential when commercial operations are implemented, as they can upset the usual organization of the warehouse and the various logistics flows. Why? Simply because promotions tend to generate an increase in demand, which logically requires a higher level of stock, compared to a period without special offers.
But we must not forget the cannibalization process that can result from a promotional operation. The forecasting of promotions must therefore also be used to anticipate a possible drop in sales of other products compared to usual sales, in order to adapt the Supply Chain accordingly. If certain items are likely to be in lower demand during a given period, the company can adjust its logistics and stock levels to avoid costly overstocking.
Optimizing HRM (Human Resources Management)
During exceptional promotions, companies can experience an increase in activity. This is the case during sales, for example, where it is not uncommon to have to hire more salespeople to cope with the crowds in store. And in e-commerce, we think for example of Black Friday offers, which attract a much larger customer base, which can generate a surge of activity for the customer service.
The forecasting of promotions also plays a role in human resources management: it enables the anticipation of short and medium term personnel needs, and is thus one of the variables of the GPEC (Predictive or Prospective Management of Jobs and Skills). This can result in the creation of temporary jobs, the implementation of overtime for current employees or the reorganization of working hours.
Refining promotional strategy
The use of sophisticated promotion forecasting tools also allows for an optimal sales plan. By generating forecasts using a variety of data based on time period, price, product type, etc., marketing and sales teams are able to know the impact of a particular promotion on sales. By performing simulations with these forecasting tools, they can define the optimal strategy to reach their objectives (increase in sales, increase in the number of customers, etc.). Adjustments can be made to the price, the promotion model (2+1 free offer, percentage discount, etc.), the duration of the offer, the communication methods, etc.
Can a rough forecast of promotions be risky for a company?
While forecasting promotional sales has definite advantages, one must also keep in mind that an unsuitable or poorly controlled forecasting method can have the opposite effect to the one expected.
When the prospective method used does not provide reliable forecasting results, the company risks a shortage of its promotional items. Some companies play on this risk of shortage to create demand, but this works for specific products with a very attractive discount.
On the other hand, for more common items (e.g. food), repeated stock-outs can have very negative consequences for the company. Tired of not being able to take advantage of the promotions they were promised, consumers may turn away from the brand or the store and go to the competition, even with higher prices or lower quality.
Questioning the quality of historical sales data
By using a global sales forecasting method, without distinguishing between current sales and those resulting from promotional operations, a company risks biasing its data. Indeed, if it calculates an average of its sales for the quarter or the year, for example, it obtains global data which do not reflect the reality of its activity, which can however fluctuate according to the period of the year. The risk is therefore to call into question the whole of the sales forecasts, which can eventually disorganize the Supply Chain and lead to an inappropriate marketing strategy.
Poor distribution of products at the point of sale
Some companies simply draw up a forecasted sales plan for their promotions on a national or even international level. This can be problematic, as we know that depending on the geographical location of a sales outlet, consumer behavior will not be the same. A simple illustration allows us to understand this: a chain of general sports stores is much more likely to sell diving accessories in Marseille than in Reims, just as it will be easier to sell ski equipment in Annecy than in Brittany.
For some companies, it is therefore essential to set up a promotional forecasting method that is differentiated according to the region, the climate or certain cultural aspects.