Boston–It doesn’t take a village to accurately forecast inventory, according to consultants Gina Valentino and George Mollo. Rather, it takes marketing and merchandising to all just get along—easier said than done at some companies. But in their Tuesday session Mollo, principal of GJM Associates, and Valentino, owner of Hemisphere Marketing, outlined the importance of what each side does and how they need to work together on inventory forecasting.
Particularly when it comes to spotting trends, Mollo noted, “merchandising and marketing need to talk to each other—and ask, Why do we think this is happening?”
Valentino, who works on the marketing side, advised attendees to begin with a contact strategy and circulation plan. “You want to create three main Excel workbooks”–a daily forecast, a response curve and forecast, and a sales and order forecast. Using the overall percentages by week, you can begin to forecast weekly response for each mailing. To get this, divide the day’s actual performance by the percent of the week it represents, she said.
Using the same template from the daily sales and forecast tally, you can develop historical response information with response curves. “It’s a pain to do in the beginning, but once you have the template, you’re golden,” Valentino explained.
Speaking from the merchandising/inventory side, Mollo pointed out that “if you’ve done proper planning, forecasting is a breeze.” The planning process should start 6-12 months before the catalog mailing, taking into consideration your product lead times (critical for photography and catalog availability), quality assurance issues, importing vs. domestic sourcing issues, and other factors.
The key to proper planning, Mollo continued, is relationships—not only between the marketing and merchandising departments, but also among products. For instance, merchandising should be able to explain to marketing that one item may not be a particularly great seller on its own, “but it might help us sell four other SKUs.”
In conducting a price-point analysis, you want to look at the average price offered vs. the average price sold. The average price offered is the subconscious view of price/value, while the average price sold is your customers’ reaction to your price points/value. Look at this by total and by product category, he said; the difference should be plus or minus 20%.
When the average price sold is substantially less than the average price offered, your products may be overpriced, or you may need to seek more items at lower price points. It’s definitely a clear indicator that your customers “are not seeing the value that you’re offering,” Mollo said.