by Adam Kaplan, Business Analyst, Kalibrate Merchandise Group
Have you ever chosen your order quantity for a promotion based solely on the quantity you sold during your last promotion for that item? This practice commonly results from and perpetuates a "wait and see" mentality — a mentality that larger retailers have had to move beyond as SKUs increased, though it has not yet disappeared from traditionally smaller SKU count convenience stores.
But if you really want to achieve higher profits in your convenience retail site or network, it's time to take some cues from big box and grocery. Analytics matter to merchandise promotion. And one of the most critical aspects of success lies in accurate forecasting.
4 Reasons You Should Forecast Promotion Results
1. GOAL SETTING
We already know why retailers aren't measuring promotion results. The absence of measurable results stems from the absence of concrete goals, which stems from a lack of forecasting. If you accurately forecast a promotion's result, you can build backward, designing an appropriate goal to measure against. You don't want to create a bar so lofty you can never reach it; instead, you want to understand what's possible and what simply isn't.
2. CATEGORY MANAGEMENT
It's easy to get excited about a category when big chunks of your sales volume come from it. Historically, the response to understanding that 30 percent of your sales came from snack foods was to say, "How can I promote snack foods in order to sell even more?" Forecasting allows you to focus promotions on categories that offer hidden — instead of the presumed obvious — opportunities. With forecasting, you may find that the price sensitivity for snacks means you won't sell as much when these items are in a promotional phase, after all, and that you should instead focus on a category whose forecasts show consumers will take advantage of a category promotion such that you sell higher volume and higher profit.
Additionally, the information forecasts give you about ancillary benefits can help you understand what categories and products to cross promote in order to deliver optimum lift.
3. CONQUER THE DATA MOUNTAIN
As mentioned above, "forecasts" of sorts have traditionally been derived by focusing on what you're already devoting time, energy and money to, and adding a certain percentage to the results from last promotion of said category or item. Instead of tacking a 4 percent increase onto your most recent promotion and calling it a forecast, you can get much more realistic with dedicated forecasting mechanisms.
Imagine your network has 400 stores, and you're selling 2 billion a year. Let's say you have 15 category managers on board, and every single one has a different spreadsheet for a different product promotion. Can you do the math to make the forecast truly accurate? Big box and grocery have moved on to letting computers crunch the numbers — because there are just too many numbers for those category managers to crunch alone. Convenience stores should embrace the need for computing power for objectivity, holism and accuracy.
4. MORE PROFITABLE VENDOR RELATIONSHIPS
Sometimes vendor offers seem like profitable partnerships your store should capitalize on immediately. At times, that's true. Other times, it isn't. But how can you know the difference without forecasting the results of the promotion you've been approached about? Forecasting helps you decide when to accept vendor funds and when to choose a different brand, so you more accurately select the most profitable relationships for your store or network.
Promotion Results Require Foresight
You do not have to be a mind reader to understand consumer desires, and you don't need to be a mathematical genius to optimize your promotional offerings. But you do need computing power if you want a clearer picture of your store's future — and a clearer picture gives you the opportunity to make better decisions and reap greater rewards.