A large apparel retail company wanted to evaluate the impact of promotions on sales and accordingly optimize its upcoming promotional spends. The presence of multiple simultaneous and back-to-back promotions, and the absence of a process to capture promotional data across departments, posed challenges in developing a forecasting model for promotional sales.
TheMathCompany teamed up with the retail giant to develop a time series model that forecasted promotional sales by identifying the baseline and isolating the sales contribution from promotions. The model offered recommendations on the right discount figures that would aid in planning promotions and maximizing margins.
- Input data collected included, nature of promotions (global, specific), discounts offered, transaction style, department, sales, return volume, and product information such as department, style, category, color, size etc. The promotions were categorized into 3 types: Full Price, Non-Full Price and Entire Purchase promotions across discount categories
- Various regression and times series models were built to forecast sales (units & revenue), identify the baseline and isolate the impact of promotions. Prophet Model was selected to split the sales (units sold) into individual basic Time Series components (seasonality, trend, etc.) and Promotional components. Unit, revenue and margin lift values were calculated in scenarios with and without discounts
- The model helped to forecast promotion sales for the upcoming month based on the cadence planned by the promotion planning team and also simulated the promotion sales forecast for all possible discounts
- A recommendation framework was developed to determine the discount to be offered for upcoming promotions by comparing the forecasted margin for simulated discounts against those as per the original promotional plan
- Recommendations were provided to change the discount offered under each individual planned promotion, as and when suited, for a month-long period
- The solution garnered approximately $2 million in profit margins from promotions run for just one month