Demand is what drives a company’s bottom line. Knowing what customers want and when they want to buy is essential — and that’s where demand forecasting comes in.
With it, it is possible to anticipate consumer behavior, prepare the business to serve customers and direct campaigns. With the alignment between demand planning and Digital Marketing, it is easier to ensure that initiatives reach the right leads at the right time, generating real impacts.
In this article, I will show you the strategic role of Marketing in demand forecasting and how to combine them. Let’s go!
After all, what is demand forecasting?
Demand forecasting is a way of trying to assess the future to know how much a company is likely to sell in the period. It serves as an estimate of the business’s commercial performance, which allows strategies to be adjusted to achieve or optimize results.
In Marketing, this prediction is especially important because we not only respond to demand, we also create it. After all, it is through Marketing that we create a need in the public, awakening desire and interest — even before the public realizes that they want to buy a product or hire a service.
To understand this concept, it is also important to consider both main types of demand: latent and effective. Effective demand is that which exists when the consumer is ready to act, evaluate options and make a decision.
Latent demand, in turn, is marked by a kind of dormant desire. It is the desire that the consumer has not yet expressed directly, but which can be triggered. With the right strategies, Marketing can transform latent demand into effective demand.
This is why, in general, demand forecasting is essential for Marketing. More than just looking at sales history, it involves analyzing trends, behavior and opportunities, guiding campaigns and other actions.
As you will see, this is a concept that allows Marketing to adjust and align its actions, which favors the achievement of results.
How important is demand forecasting for Marketing?
One of the reasons why Marketing uses demand forecasting is that it serves as a map. Using these results, it is possible to direct campaigns, adjust strategies and improve the approach to speak to the right people at the right time.
There are many adjustments that can be made based on sales forecasts, ranging from promotional campaigns to inventory management measures, for example. With this demand planning, it is possible to reduce the risk of having a stock full of products that do not attract the public’s interest.
In this sense, demand forecasting also helps to distribute and prioritize the Marketing budget. Knowing which actions have the greatest potential for return and how demand tends to behave makes it easier to define which strategies will be adopted in each period.
Marketing also works in sync with demand forecasting when we think about the union between valuable content and performance. Through content, it is possible to generate demand and nurture those who have already shown interest in solving a problem or need.
With this integration, it is easier to achieve conversion, as well as achieve customer loyalty due to the relationship built. To better understand how to integrate valuable and performance content, I recommend that you watch my lecture that also deals with demand generation and capture:
Types of demand and their strategic roles
When we talk about demand forecasting, it is essential to consider that there are different types of demand and each one requires a specific approach in strategic Marketing planning.
Knowing each of these types is like understanding which tool is best suited to perform a task. See what the classifications are!
Constant demand
It involves products or services with a stable demand over time. The objective of Marketing, in this case, is to strengthen the relationship with the customer, deepen brand awareness and ensure retention.
Seasonal demand
This option involves products or services whose demand varies with each season of the year. This is the case for seasonal clothing or products for special dates, such as Christmas. To take advantage of this, Marketing needs to anticipate and create campaigns focused on generating expectations and maximizing sales.
Irregular demand
This is a type of demand in which demand is unpredictable. It can be motivated by the viralization of a trend or even by a crisis or problem. This alternative requires flexibility from Marketing, which needs to adapt actions according to the behavior and interest of the public.
Emerging demand
This alternative occurs when there is a demand for something new or unexpected. The launch of a technology or a situation such as the pandemic ,are examples that can generate the need for a product. In this case, Marketing must focus on innovating and educating the public, stimulating curiosity.
Adaptation on the part of Marketing is essential to seize opportunities and remain competitive. Therefore, it is necessary to be prepared to adjust campaigns and actions according to each configuration.
How to make a demand forecast?
To get demand planning right, the first step is to analyze sales history to understand patterns and get an average performance. It’s also essential to consider external factors, such as market changes and general consumer behavior.
Based on this information, it is worth adjusting marketing and management strategies in general. The idea is to use this forecast for everything from promotional campaigns to inventory management, optimizing results.
Want more information on how to apply this analysis in practice? Check out other tips on how to best forecast demand!
What are the demand forecasting methods?
Depending on the scenario and the data available, you can use different demand forecasting methods. Below, I’ll show you some of the advanced options you can use!
Historical data analysis
More than just a starting point for demand planning, data analysis can increase the accuracy of this advance vision. The main objective is to anticipate the behavior of the public in similar scenarios.
With a longer period of analysis, for example, it is possible to identify trends and seasonalities that will serve to support the planning of current actions.
Statistical modeling
Statistical modeling involves several techniques and models that seek to predict demand with greater confidence. It seeks to establish relationships between demand and several variables — such as price or sales campaigns.
With this information, it is possible to understand which factors affect performance. This methodology is usually more useful in sectors with dependent variables, such as a type of product or service whose consumption is heavily influenced by price.
Market trends
Assessing market trends is another method for forecasting demand. Analyzing consumer behavior and even competition is essential in this method.
It is also worth highlighting the use of monitoring tools, such as Google Trends and social listening resources. They help identify changes in the audience and competitors that may affect demand. Below is an example of a search using the tool?
Furthermore, it is possible to combine more than one demand forecasting method. The result is likely to be even more accurate and reliable, helping to support more effective actions.
Demand forecasting example
To better understand demand forecasting, imagine that an online electronics store is preparing for the arrival of a new model from one of the store’s main brands. Demand forecasting is essential to determine what the order should be from the supplier.
The first step is to evaluate last year’s sales results. Let’s say that in the first month of the last three launches, the average was 500 devices sold. So, it makes sense to use this number as a baseline, right?
However, there are other variables to consider as well. If from one year to the next the store has invested more in SEO and other strategies and has increased traffic by 20%, sales are likely to increase.
The same thing happens if this year’s paid traffic campaign has a budget that is 15% higher than last year’s, for example. Given these numbers, it is possible to plan for demand that is 30% or 40% higher. Therefore, it makes sense to expect to sell 650 to 700 devices in the first month of the launch.
Note how the forecast takes into account both historical data and current information, such as the impact of recent actions. This makes it easier to arrive at an accurate result.
Impacts of successful demand planning
Okay, so you already know how to forecast demand. But why is this step so important for business success?
One reason is that by planning demand better, you are able to adjust strategies effectively. Depending on the type and size of demand, you can create specific campaigns that speak to the right audience.
This forecast also helps to optimize inventory, avoiding shortages or excess of the product. It also allows the customer service team to be prepared and even improve negotiations with suppliers.
From a financial point of view, a good demand forecast favors cash flow. By purchasing what is needed for inventory, the business does not lose sales due to shortages or suffer losses due to excess inventory.
Ultimately, getting demand forecasts right is like being one step ahead. You anticipate consumer behavior and can prepare to overcome challenges and seize opportunities.
Synergy between forecast and strategy!
As I have shown, demand forecasting helps align the Marketing and Sales areas and optimizes various business results. With it, it is possible to plan and adapt campaigns, making them more effective and generating more opportunities for the company.
To ensure quality forecasts and campaigns, it is essential to have the support of professionals. So, do you want to take your demand forecasting and Marketing strategy to the next level? Count on the expertise of our Digital Marketing agency to align campaigns, optimize results and transform opportunities into success.
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