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We discuss the development and implementation of CHAN4CAST, a sales forecasting model, by pack size, category, channel, region, customer account and a Web-based decision support system (DSS) for consumer packaged goods. In addition to capturing the effects of such variables as past sales, trend, own and competitor prices and promotional variables, and seasonality, the model accounts for the effects of temperature, significant holidays, new product introductions, trading day corrections, and adjustments to the wholesale level. In general, the model forecasts sales volume satisfactorily for a leading consumer packaged goods company. The DSS enables top- and mid-level executives in sales, marketing, strategic planning, and finance to develop accurate forecasts of sales volume, plan prices, and promotional activities over a long time horizon; to track sales response to marketing actions over time; and to simulate forecast scenarios based on possible marketing decisions and other variables. CHAN4CAST is being rolled out for more users and more divisions in the company. The key take-aways are that successful development and implementation of a rigorous marketing science model require a strong internal champion, a careful balance between modeling sophistication and practical relevance, good diagnostic features, regular validations, and greater attention to the development of a fast and responsive DSS.
Key words: forecasting; econometric models; channels; decision support system; marketing mix; pricing; promotions; strategic planning
History: This paper was received July 21, 2004, and was with the authors 4 months for 2 revisions; processed by Gary Lilien.
"The ability to reconcile (sales) forecasts with performance is (critical). It is very important we have a format that allows the field managers (to) access the model and change inputs as needed during the month."
Senior Marketing Executive
"Predicting the future is hard, especially for those who create it."
Anatole France
1. Introduction
Forecasting sales volume or demand is a complex and difficult process that is of paramount importance to consumer packaged goods companies like PepsiCo and Kraft Foods. Consumer packaged goods are increasingly sold through multiple channels such as grocery (e.g., Kroger), drug (e.g., CVS), mass merchandise (e.g., Wal-Mart), and convenience and gas (C&G, e.g., 7-Eleven) stores in multiple geographic regions such as the East Coast and the Midwest. Other channels, such as food service, restaurants, vending machines, and movie theaters also constitute...