Holidays, annual events, and seasonal shifts can all drive consumer demand. For many brands, these seasonal or holiday periods can make or break their financial performance for the full year. How can brands ensure they are set up for seasonal success?
While numerous factors go into such a success we will focus on two key elements here – demand forecasting, and advertising budget planning.
Demand forecasting is based on leveraging each year’s past sales performance and current expectations about future performance to generate a dynamic forward-looking demand forecast for a product or category. With such a short window of consumer interest, companies must pre-position inventory to immediately take advantage of increased demand in order to avoid out-of-stocks.
Advertising budget planning involves setting an advertising budget for a period based on revenue/profit goals. Given the very short window and huge potential impact on overall financial performance, the brand needed to accurately budget how much to invest in advertising during this period to reach revenue goals while staying within the net margin and ROI target ranges.
This case study will follow one brand’s multi-year experience working with Incremental to optimize these two elements for a seasonal grocery product. Read more to see how this brand saw 5x year-over-year (YoY) growth as a result.
The background and challenge:
A national grocery brand has several products which see peak demand in November and December (over 90% of this product’s annual sales occur during the days leading up to the Thanksgiving and Christmas holidays). Past demand forecasts lacked accuracy and often over or under-estimated sales resulting in out-of-stocks and leftover inventory in warehouses. Similarly setting their advertising budget for the period was a challenge, with sales increasing organically it was difficult to parse out what incremental effect advertising would have. They sought a more robust approach to estimate the incremental impact of advertising on top of seasonal factors so they could accurately set an advertising budget that would ensure they hit their sales goal for the period.
The solution:
Demand Forecasting – Incremental’s demand forecast is based on a machine learning model trained on several years of historical sales performance. The model was extensively back-tested on historical periods and accurately estimated demand within a range. The brand used this to ensure adequate inventory was manufactured and delivered to a FBA facility ahead of the seasonal period to ensure there was no risk of stocking.
Advertising Budget Planning – The brand’s first step was to shift the set of metrics they used to measure the effect and efficiency of the advertising to a more robust set of metrics that could separate advertising impact from confounding seasonal factors. This meant moving away from ad-attributed sales which do NOT control for seasonal factors to incremental sales and recalculating the return on that investment to only count incremental sales (iROI). Incremental Lift & Incrementality models leveraged numerous external factors like seasonality, promotion, macroeconomics, and outside platform advertising spend to isolate the incremental impact of the brand’s Amazon advertising budget on sales. This model was then used to simulate future budget scenarios for the coming seasonal period. The result was a clear fact-based budget on much they should spend on Amazon advertising during that period that would ensure they reached the sales goal while staying within their net margin target range which factored in COGS, selling fees, AND the cost of advertising.
The results:
The demand forecast model picked up increasing demand earlier than usual in October and updated the demand forecast in time for the brand to ship more inventory to FBA facilities earlier than normal. This proved incredibly important as the brand avoided any stockouts during this period and had little remaining inventory left over at the end of it. With the advertising budget set ahead of time, the brand’s team leveraged Incremental Lift & Incrementality solution to monitor the incremental impact of the numerous campaigns that had inflight and optimize each week. The platform automatically identified campaigns that were not driving incremental sales and instead were targeting keywords that would otherwise result in organic sales and suggested reallocation of that budget to campaigns that were driving incremental sales. This resulted in an iROI 2x what was seen in previous years and while exceeding their revenue target.
What’s next:
With the holiday period over, the brand is leveraging Incremental’s Retail Media Measurement product to continually optimize evergreen campaigns that run throughout the year.
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