Retailers must embrace 'demand sensing' to improve performance: Kearney

New technologies and initiatives to measure consumer behaviour numerically can increase demand forecasting accuracy.

Black Friday specials and back-to-school sales are retail blockbusters, but management experts stress the equal importance of demand sensing or the process of understanding consumer behaviour.

According to Kearney, a global management consulting firm, demand sensing is more important for the retail business in these times as it ensures that products are available to the consumer, avoids loss of sales, and helps lower the cost to serve and maintain inventory.

Interviewed by Retail Asia, Siddharth Pathak, Senior Partner, Head of Consumer Industries and Retail for Asia Pacific at Kearney, said demand sensing identifies the problems with traditional marketing methods and increases retailers’ forecasting accuracy.

“Demand sensing is about understanding your consumer: what they buy, how much they buy, where they buy, and what time and location they buy. If a retailer can get that right, they can ensure that the products are available… and so there is no loss of sales,” explained Pathak.

Pathak said that whilst demand forecasting can never be perfect, there are ways retailers can improve accuracy.

First, it requires significant co-sponsorship at the leadership level as it is a company-wide initiative. Second, it is important to understand what drives consumer behaviour and to measure it numerically and accurately, which is a big challenge for businesses. Third, technology is becoming increasingly important in capturing external data that resides outside the organisation. Fourth, it is important to work with technology partners and ensure that their needs are built into the features that the technology or service providers offer. Finally, it is important to factor in human intervention in demand forecasting, as AI models cannot predict what would happen during unforeseen events like the COVID-19 pandemic.

Pathak advised that in order to avoid inaccurate demand forecasts, retailers must refrain from constant reliance on the past as a good predictor of the future.

“What’s happening today is far more complex; consumer behaviour is changing. They’re not predictable. They want to shop at any time of the day. They shop online and they shop offline. And they also then also not loyal to brands necessarily, they want to try different things over and over again,” he stressed.

There are also macroeconomic factors such as rising interest rates and the COVID health crisis that add more complexity to forecasting.

The key, according to the Kearney expert, is for retailers to embrace new technologies to capture and analyse external data that impacts consumer behaviour.

Also, retailers should have a comprehensive understanding of what drives consumer behaviour and be able to measure it accurately and numerically.

Stressing how important it is for business leaders to make this happen as a company-wide initiative, Pathak said: “Getting demand sensing perfectly right requires the commercial and the business teams to work together with the supply chain teams to work together with the IT and technology team.”

With the right approach, retailers can improve demand sensing and forecasting accuracy, leading to better business performance, he said.