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Predictable profits? Look to the future

Summit

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October 28, 2015 | 6 min read

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The million pound question

Forecaster prediction engine

How can retail businesses improve their revenue and profitability?

Christmas makes or breaks a retailer. A good peak can make up for a slow year, while a bad peak can have disastrous consequences. In addition to the gradual buildup of activity towards the end of the year, the intensity of Black Friday and Cyber Monday have seen them become critical dates in the retail calendar. The popularity of Black Friday, in particular, took many people by surprise in 2014, and it is expected to be even bigger this year. Customers are becoming more deal-focused and holding off on spending until they can take advantage of promotional offers during the festive period, making precise planning more important than ever. Christmas can be a particularly challenging time to forecast and determine where to invest budget for the greatest return, and the winners are often those retailers that have a clear strategy aligned with accurate forecasting.

Great opportunity lies in the ability to predict customer behaviour, and leverage these insights to decide where and when to invest budget. As the search channel continues to develop, more and more digital ‘fingerprints’ are available to marketers. These indicate customer behaviour but importantly they also offer the opportunity to identify patterns and relationships in this data that allow the reliable prediction of what’s likely to happen tomorrow, next week, next month and beyond. This is powerful information.

Looking into the future

Let’s imagine you knew how much money you could make tomorrow; that you could identify how much you needed to spend on advertising to maximise your return and where to spend the marketing budget to ensure the biggest gains. Knowing your risk is minimised allows for greater confidence in decision-making.

The holy grail

Typically, digital marketers can measure today what happened yesterday. Through robust and rigorous analysis they can understand what interventions drove changes in performance. However, accurately predicting what will happen in the future, largely remains the holy grail of marketing. But, it is now possible thanks to the use of advanced statistical techniques - predictive analytics. Statistical modeling and the understanding of customer buying-triggers can lead to highly accurate predictions of where and when to spend marketing budget for the greatest return.

Over the last five years, working closely with Professor David Wooff at Durham University, Summit has developed a business intelligence platform for retailers called Forecaster.

Forecaster offers retailers a truly a groundbreaking advantage in decision-making. Its learning capability, using advanced statistical models and real time inputs such as weather, TV advertising, stock and seasonality, provides highly accurate forecasts and optimisation for digital marketing channels such as PPC, PLA and display.

Financial confidence

Using Forecaster provides ecommerce teams with the advantage of knowing what is likely to happen with a level of confidence. Forecaster is a vast improvement on typical forecasting techniques which are at best a basic ‘bottom up’ model with an anecdotal view on expected growth - effectively ‘betting’ with poor odds. They do not utilise or have access to statistical modelling nor do they identify the options available for spending a budget e.g. where to spend extra budget each day or identifying how much more opportunity there is to spend whilst still making profit. ‘Micro’ under-spending each day multiplies over time and is as damaging to profit as over spending. Most businesses don’t know how much they should be making and therefore don’t measure the loss.

Inside forecaster

Forecaster processes search engine data, efficiency targets, transactional and external data influencing buying behavior. Along with knowledge of customer trends and budget information, Forecaster combines all the inputs via a comprehensive data management system.

These recommendations provide forecasts of expected performance, bid allocations for each keyword and diagnostic reports, which form the basis of decision-making on a daily basis. Forecaster can also provide the answers to ‘what if’ questions; for example, what if I had an extra £10,000 – where should the money be spent to provide the greatest returns?

Harnessing weather, TV and seasonality

Forecaster’s statistical team have capitalised on the opportunity that understanding seasonality presents, by creating an entire library of seasonal models across retail products and categories. These models predict how products are likely to behave at a particular time of year or during an event such as bank holidays or the build up to Christmas. Every event in a retailer’s calendar can be modelled, providing a bespoke and highly accurate view of expected demand and performance.

Forecaster also imports a ten day rolling weather forecast each morning, split across key regions of the country. This enables accurate prediction of how the variance in weather against the expected norm for the time of year is likely to affect sales and demand. According to Summit’s research, the absolute purchase trigger for certain products is temperature. Forecaster is able to automatically exploit this trigger by mapping weather forecasts against products that are correlated to changes in weather.

Our research has shown that in many cases there is a significant ‘spike’ in search queries and click-through rates in a short period after the airing of a TV ad. In order to capitalise on this buying behaviour, Forecaster takes inputs from across all major television channels in real-time, looking for opportunities to launch and modify search marketing campaigns in synchronisation with television events.

Predictive analytics and the methods employed by Forecaster clearly offer businesses a significant competitive advantage over current methods used by the majority of digital marketers and agencies.

“It’s almost like cheating” - Professor Wooff from Durham University.

Hedley Aylott, chief executive and founder, Summit

Tel: 01482 876 876

Email: hedley.aylott@summitmedia.com

Web: www.summit.co.uk

Twitter: @summitmedia

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We help brands transform their online business, grow their customer base and make more money from retailing online. In a complex digital marketing world that is...

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