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The art of data science: why forecasts, pricing and promotions need the human touch

Robert Diamond, Chairman

Five simple but profitable questions every retailer should be asking

  1. Do you end the season, quarter or month with a significant performance gap between forecast and actual demand?
  2. Are your prices fully based on customer insights and business goals, or rather tactically driven by considerations about cost and competition?
  3. Did you invest significantly in promotions and temporary price reductions to clear excess inventory?
  4. Are your retail forecasts leaving substantial margin value on the table?
  5. Last, but not least – can you accurately measure the answers to these questions in a way that can guide future trading decisions?

Introduction

Few industries are as brutal as retailing.

The challenges include hyper-competitive multi-channel markets, combined with the complexities of global sourcing within the context of broad ranges that have strong inter-relationships across products, categories and competitors. Additionally, all this is often masked by high volatility in sales data and seasonality at both the macro and micro-levels.

This is the minefield facing retailers who are asked to place forecasting bets an entire season, or at least months, in advance.

While promotions and markdowns – relatively blunt tools – can be used to reduce waste and sell through excess inventory at a hopeful profit, they also create additional complexity in monitoring demand and impacts. At the end of the year, the majority of a retailer’s margin is made – or lost – depending on the size of the gap between forecast and actual demand.

This white paper looks at the ways retailers can improve forecast accuracy and price / promotion decisions. Fixing each of these areas can produce powerful standalone results but, when managed together, the synergy is unstoppable.

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