Analyze and Manage the Impact of Pricing and Promotion on Inventory

Bridge the gap between marketing activity and inventory management with a better understanding of the impact of pricing and promotion on inventory.

In most companies, a gap exists between Marketing and Operations – a communications gap that you’ll want to avoid ‘stepping into’, if you’ll excuse the pun. Brands frequently use price as a lever to achieve strategic and tactical goals. These include encouraging product trials, boosting sales, entering new markets, maintaining channel mindshare and thwarting the competition.  

For products with elastic demand, all that price manipulation can create turmoil for those managing distribution, inventory and fulfillment, and can have serious consequences, including slower inventory turns, increased stock-outs, and decreased customer satisfaction. 

Pricing and Promotion Analysis 

The reasons for the disconnect among corporate departments are typically benign. For example, pricing and promotional data are often stored in a Product Information Management or Trade Promotion Management system, while inventory is managed in a separate, disconnected system (ERP or WMS). Regardless of the root cause, a pricing and promotion analysis solution helps planners isolate price as the key variable in a multivariate scenario and create a promoted forecast, which can then be easily compared with one or more base forecasts. 

An optimal Pricing and promotion analysis solution uses machine learning algorithms and price elasticity models to create promotion-influenced forecasts. In other words, planners will have a mechanism to perform granular what-if analyses in the face of frequent price changes. Users can leverage the technology to understand the impact of pricing and promotion on demand (the ‘lift’) and take action to ensure inventory positions are sufficient. 

Enrich Your Demand Planning Capabilities 

Pricing and promotion analysis will benefit companies that: 

  • Have a basic forecasting discipline in place but no systematic way to model price change outcomes and account for differences in important segments (location, region, etc.) 
  • Have outgrown manual tools and are (often) mired in multiple spreadsheets from multiple sources 
  • Need a strong promotion lift solution to complement their demand planning capabilities and generate a price-adjusted forecast to align inventory decisions with marketing campaigns 
  • Have sufficient price and sales data at the product category and SKU level. 

To get the most out of the technology, companies must ensure that data is accurate and complete, and that confounding events have not strongly biased the data and obscured important nuances, such as seasonality, business changes, market changes or a combination of these. 

Dealing with the Unavoidable 

As you have probably gathered, it’s all about data quality and the trustworthiness of the models built on the data. If the foundational input is incomplete or unreliable, even the most gifted analysts can’t be certain of their decisions. 

In conclusion, we suggest recognizing and accepting the fact that marketers will always jump at the chance to use price as a driver and will therefore repeatedly put planners in a challenging situation. Logility’s pricing and promotion analysis solution was designed and developed with that reality in mind. 

Are you interested in learning about more ways machine learning can help with supply chain planning? Read our white paper Making the Case for AI and Machine Learning