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The value of competitive information in forecasting FMCG retail product sales and the variable selection problem

Huang, T., Fildes, R., Soopramanien, D. (2014) The value of competitive information in forecasting FMCG retail product sales and the variable selection problem. European Journal of Operational Research, 237 (2). pp. 738-748. ISSN 0377-2217. (doi:10.1016/j.ejor.2014.02.022) (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided)

The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided. (Contact us about this Publication)
Official URL
http://dx.doi.org/10.1016/j.ejor.2014.02.022

Abstract

Sales forecasting at the UPC level is important for retailers to manage inventory. In this paper, we propose more effective methods to forecast retail UPC sales by incorporating competitive information including prices and promotions. The impact of these competitive marketing activities on the sales of the focal product has been extensively documented. However, competitive information has been surprisingly overlooked by previous studies in forecasting UPC sales, probably because of the problem of too many competitive explanatory variables. That is, each FMCG product category typically contains a large number of UPCs and is consequently associated with a large number of competitive explanatory variables. Under such a circumstance, time series models can easily become over-fitted and thus generate poor forecasting results. Our forecasting methods consist of two stages. In the first stage, we refine the competitive information. We identify the most relevant explanatory variables using variable selection methods, or alternatively, pool information across all variables using factor analysis to construct a small number of diffusion indexes. In the second stage, we specify the Autoregressive Distributed Lag (ADL) model following a general to specific modelling strategy with the identified most relevant competitive explanatory variables and the constructed diffusion indexes. We compare the forecasting performance of our proposed methods with the industrial practice method and the ADL model specified exclusively with the price and promotion information of the focal product. The results show that our proposed methods generate substantially more accurate forecasts across a range of product categories. © 2014 Elsevier B.V. All rights reserved.

Item Type: Article
DOI/Identification number: 10.1016/j.ejor.2014.02.022
Uncontrolled keywords: Business analytics, Competitive information, Forecasting, OR in marketing, Promotions, Retailing, Commerce, Forecasting, Business analytics, Competitive information, Explanatory variables, Forecasting performance, Promotions, Retailing, Variable selection methods, Variable selection problems, Sales
Subjects: H Social Sciences > H Social Sciences (General)
Divisions: Faculties > Social Sciences > Kent Business School
Depositing User: Tracey Pemble
Date Deposited: 08 Sep 2014 13:45 UTC
Last Modified: 20 Jun 2019 11:17 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/42850 (The current URI for this page, for reference purposes)
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