How to Forecast Trade Promotions

We know at this point that critical component of successful trade promotion management is accurate forecasting. But how do you actually do it?

Forecasting trade promotions involves predicting the impact of planned promotional activities on sales volume, revenue, and profitability, enabling CPG brands to make informed decisions about their promotional strategies and investments.

Before we dive into the process of how to properly put together a forecast, let's quickly review the difference between forecasting sales and forecasting trade promotion forecasting.

Sales Forecasting

  • Sales forecasting is a broader concept that involves predicting the overall sales volume and revenue for a given period, typically based on historical sales data, market trends, and other relevant factors.
  • It considers the overall demand for a product or brand, taking into account factors like seasonality, market conditions, competition, and consumer behavior.
  • Sales forecasting helps CPG brands make informed decisions about production, inventory management, resource allocation, and financial planning.
  • The goal of sales forecasting is to provide a comprehensive view of expected sales performance, which can guide strategic decision-making and help brands set realistic targets.

Trade Promotion Forecasting or CPG Demand Forecasting

  • Trade promotion forecasting specifically focuses on predicting the impact of planned trade promotions on sales volume and revenue.
  • It involves analyzing the effectiveness of various promotional activities, such as temporary price reductions, displays, features, or bundling, in driving incremental sales.
  • Trade promotion forecasting takes into account factors like the type and timing of promotions, the specific retailers or channels involved, and the expected consumer response.
  • The goal of trade promotion forecasting is to optimize the allocation of trade promotion funds, identify the most effective promotional strategies, and measure the ROI of specific promotions.
  • By accurately forecasting the impact of trade promotions, CPG brands can make data-driven decisions about their promotional mix, negotiate better terms with retailers, and avoid overspending or underspending on promotions.

Key Differences

  • Scope: Sales forecasting provides a broad overview of expected sales performance, while trade promotion forecasting focuses specifically on the impact of promotional activities.
  • Timeframe: Sales forecasting typically covers a longer timeframe, such as a quarter or a year, while trade promotion forecasting may focus on shorter periods, like a specific promotional event or campaign.
  • Granularity: Sales forecasting often provides a high-level view of sales volume and revenue, while trade promotion forecasting drills down into the specific impact of individual promotions and tactics.
  • Decision Support: Sales forecasting supports overall strategic planning and resource allocation, while trade promotion forecasting helps optimize promotional spending and tactics.

Now that we've reviewed the difference between the two processes, let's understand how to actually forecast.

How to Forecast Trade Promotions

CPG demand forecasting or promotional forecasting is an intricate process, integrating diverse data sources, leveraging various analytical tools, and requiring cross-functional collaboration.

Here's how to do it.

Step 1: Gather Historical Data

Collect data on past trade promotions, including the type of promotion, duration, participating retailers, promoted products, and associated sales and cost data.

Ensure data quality by standardizing data formats, harmonizing data from multiple sources, and cleansing any errors or inconsistencies.

Step 2: Analyze Historical Performance

Evaluate the effectiveness of past promotions by calculating key performance metrics such as incremental sales lift, return on investment (ROI), and profitability.

Gather data on promotional performance. This includes shipments, POS data, and deductions. Determine price points, timing, and frequency of events that best fit your objective

Step 3: Figure out your Forecasting Process

Do market research to understand current market trends, competitor strategies, and potential disruptions and gather KPIs

There are a number of different models and ways in which you can forecast trade promotions; regardless of which one you choose (based on the data and resources available to you) it’s key to consistently keep your forecasts accurate and up to date with the latest data

Step 4: Plan and Simulate Future Promotions

Collaborate with sales, marketing, and finance teams to develop a comprehensive trade promotion plan, considering strategic objectives, budget constraints, and retailer-specific requirements.

Evaluate the potential impact of different promotional scenarios, such as changes in timing, duration, or promotional depth.

Step 5: Monitor and Adjust

Continuously monitor the actual performance of executed trade promotions against forecasted results.

Analyze variances and identify the root causes of any deviations from the forecast.

Use these insights to adjust and optimize future promotions, refine predictive models, and inform overall trade promotion strategy.

Step 6: Integrate with Sales Forecasting

Incorporate trade promotion forecasts into the overall sales forecasting process, ensuring alignment between tactical promotional plans and strategic sales objectives.

Use trade promotion forecasts to inform production planning, inventory management, and financial budgeting processes.


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