Before you go shopping, do you compare the prices in different stores before finally settling with the best price? If you do, you’re really not alone. In fact, 86% of consumers actually browse through and compare the prices of products at different places before they finally make that purchase.
Being a retailer, you must consider this and ask yourself, “Is my price competitive enough?” in a highly competitive market, the success or failure of your business is contingent on selling at an optimal price point. More so, sustained market success depends majorly on an accurate demand forecasting through competitor price monitoring.
To understand this concept better, let’s explain terms like price monitoring and demand forecasting. After which we shall explore the relationship.
Why is Price Monitoring Important?
As a retailer, price monitoring involves the critical evaluation of the monetary value attributed to similar products being sold by competitors. Price monitoring is very important because it gives us an overall view of the price structure of the market in real-time.
The data obtained from price monitoring (either manually or automatically) gives retailers an idea of how to appropriately adjust the pricing strategy in response to the market trend, consumer behaviour, competitor’s actions (like discounts, bonuses and so on). In essence, price monitoring is the tool used to leverage the market.
No doubt, price monitoring can be very stressful and time consuming when done manually. You probably need to hire new employees solely for this job. Besides, if they work for 8 hours, 5 times a week, they might eventually complete the project in 3 months (give or take). Keep in mind that the results they will deliver to you will be outdated and possibly inaccurate, depending on the market volatility.
You can, however, utilise sophisticated price tracking tools which automate the process and give you accurate, almost instantaneous results on competitor’s pricing and promotions.
What is Demand Forecasting?
Demand forecasting is all about predicting the future demand for your product. As simple as this concept might sound, its benefits are quite profound.
Failure to forecast demand makes you clueless about what the future trend of the market is going to look like. This handicaps you as you are not able to prepare adequately for future demand.
The result: you would not be able to optimally utilise the opportunities that will present themselves for you in the future.
Even worse is wrongly forecasting demand. Wrong demand forecasting misguides you in your strategic planning. When the plan in place is faulty, failure is inevitable. In addition to this, your company wastes valuable time, effort, and money on wrong forecasts.
Why Do Retailers Require Demand Forecasting?
All things being equal, accurate demand forecasting is not all there is to a successful marketing campaign or astronomical sales, however, without it, important business decisions will be based on unclear theories. Worse still, wrong assumptions. History has shown that those who critically understand the market and can comfortably develop insights into the future have a better chance of excelling than those who do not.
Here are 4 reasons why retailers need more accurate and reliable demand forecasts:
- Demand Forecast Helps in Predicting Future Sales
As we all know, a steady source of revenue is very integral to the growth of any business. Being able to predict sales will help you project profitability and make necessary plans to ensure that profits are maximised in the future.
- Demand Forecasting Ensures Effective Sales Strategy
If you know what the demand is going to look like in the future, the marketing strategy can be shaped as to maximise future opportunities and increase customer acquisition.
- Demand Forecasting Helps to Control the Market
If you’re a brand, demand forecasting helps you know the quantity you need to produce in the future. This enhances budget preparation and helps you work with price elasticity.
- Track Performance Better with Accurate Forecasts
You will be able to compare future performance with your expectations and see how you can tweak some variables such as the date of production of the next batch of orders, the next set of promotions to roll out, and the volume of products to market in order to meet or even surpass your expectations.
How can Price Monitoring Help with Demand Forecasting?
When forecasting demand, the importance of historical data of prices cannot be overemphasised. The analysis of history – whether it’s sales, pricing or a combination or a variety of data sources, gives us a view of what tomorrow might look like.
Easy to use tools on internal price monitoring enable you to monitor the prices of your product. It gives you the historical trend of prices which can foretell the model of future demand. This can be done manually, but if product offering expands, the calculation becomes complicated. For optimal results, an approach which provides automated real-time monitoring should be utilised to increase efficiency.
In addition, Price-monitoring helps you to understand the competitive landscape. This is important because it enables you to incorporate the pricing of competing products to predict cannibalisation and inter-product impacts.
This interaction of historical prices and competing prices enables you to come up with a price optimisation algorithm that can be used to develop a model to forecast demand.
This model can then be used for two major kinds of demand forecasting:
- Effect of price change on demand: You can see how changing your price point will affect the demand for your product.
- Effect of time on demand: All other things being equal, you can see how demand for your product will look like in the future.
This is worth mentioning again that accuracy trumps any other factor that might be considered when forecasting demand. This is why it is important to automate this process, thereby engendering infallible results.
To Top Off The Scenario…
We’ve now realised the key role price monitoring plays. This means that adequate care must be taken when making informed pricing decisions and identifying market opportunities.
Price tracking can help you track competitors and channels pricing, grow your customer base and increase revenue and margin. This will surely provide you with more informed data that you require in executing an accurate demand forecast.
The success of any organisation is contingent on how well they can prepare for the future and plan ahead for unforeseen surprises. Failure to do this will result in unprecedented troubles for employees and managers and ultimately have a big impact on the business’ ability to succeed.