It’s a complex world that today’s retailers live in. Increasingly demanding consumers have access to seemingly limitless product information, mobile devices and numerous online and social commerce channels. As such, retailers are struggling to understand what that demand looks like across all channels and how they should structure their organizations to meet it.
Many will find the answer in technology: a recent Gartner report predicts that supply chain applications will be the second-highest spending priority for retailers by 2013*. That same report indicated that ever-shifting consumer demand tendencies will require retailers to accelerate investments in Demand Sensing and Demand Shaping technologies – an area that has not been given enough attention over the last several years.
Defining Demand Sensing and Demand Shaping
What does Demand Sensing and Demand Shaping mean for retailers? Essentially, companies that deploy these strategies are better positioned to anticipate and respond to shifts in demand based on statistical forecasting, product profiling and promotional and pricing activities. Broken down, Demand Sensing is defined as evaluating the impact of consumer demand over time, and then using that information to forecast and plan for the future. Demand Shaping is thought of as leveraging promotional or pricing changes to drive specific consumer-buying behaviours.
Lacking the Ability to Analyze and Track Demand at the Lowest Levels
Demand Sensing and Demand Shaping seem like strategies that every retailer should have in their arsenal. However, retailers have been limited in their ability to analyze the vast amounts of data required to better understand how factors like seasonality, trends and promotions impact demand levels. In the past, retailers would manage demand proactively at a high level while relying on reactive strategies at a lower level when it came time to execute. This was mainly due to the fact that until recently, most systems were not built to track and analyze shifts in demand at the SKU/location levels.
Capitalizing on the Benefits
Advances in modern demand management solutions have made it possible for today’s retailers to plan for and shape demand at the lowest levels. Demand Sensing helps retailers increase customer service, as well as improve the flow of inventory to meet location specific demand. Being able to accurately predict what their shoppers will buy and when ensures that retailers will have enough inventory available in the right channels, at the right time. Ultimately, this allows them to improve their overall stock mix while reducing excess inventory held in every level of the supply chain. Once retailers gain accurate customer insights across all of their selling channels, they can leverage pricing and promotions to shape demand for their products. For example, retailers that do market-basket analysis may be able to drive up demand for one item by marking down the price for another. Pricing and promotional events help businesses increase online and in-store traffic, reduce excess stock levels and improve the rate of sale for their products – all of which may lead to higher sales and profits.
We offer the following recommendations for businesses that want to leverage Demand Shaping and Demand Sensing strategies:
• Capture the appropriate historical data: Having access to the right information is critical to planning future demand. For example, if a retailer wants to run a promotion for a certain product, it should know if and when that product was put on promotion before, what type of promotion it was, what the price was during the event, how their customers reacted to it – and, if possible, what factors (i.e., weather conditions) impacted the campaign. Finally, the retailer should choose the right aggregate level to analyze demand, whether it’s weekly or monthly, by location or channel or at the SKU or product hierarchy level.
• Choose the correct strategy: Retailers wishing to offload excess stock can shape demand for certain products using an effective markdown strategy. However, retailers that seek to drive additional sales should consider choosing certain key products to promote in order to drive up foot or click traffic and increase basket size. There are various ways to approach Demand Sensing and Demand Shaping – choosing the strategy that best fits the overall plan is paramount.
• Don’t forget about new products: Demand forecasting is relatively straightforward for products that have sold before. But shorter product lifecycles translate into more new product introductions than ever before. The challenge for retailers is accurately predicting demand for new products. This is where substitution and profiling come into play: if a retailer introduces a new product to replace an existing one, it should link the demand for the existing product to the new item to create a demand pattern to reference. Alternatively, retailers can group like products together to come up with a demand profile for the new item. Both approaches are designed to help businesses create accurate demand patterns for products that would otherwise have none.
Contributed by: Peter Leith, Director of Product Strategy, JustEnough
*Gartner, “Predicts 2012: IT Investments in the Retail Value Chain
Grow to Manage Demand and Consumer Unpredictability,”
November 2011
