RETAIL PHARMACY CHAIN

Promotion Optimization

Transforming promotion forecasting using machine learning

THE CHALLENGE

Promotion optimization is a recurrent challenge for most retailers. Our client, a retail pharmacy chain, had a problem with accuracy in forecasting their promotions and was looking to re-engineer the promotion optimization process to simplify and streamline decision making. The promotional sales and profit forecasting process was handled by software solutions from a large commercial vendor, but this tool did not provide great accuracy in its forecasts, which undermined confidence in the overall system. Oliver Wyman was invited to address these issues. 

"The program is now driving over 90 basis points of improvement in gross profit."

What we did

Improved analytics with machine learning

Improved analytics with machine learning

In less than six weeks, we built a promotions forecast engine by using three components: a historical model, a regression model and a random forest machine-learning based algorithm, which finds complex patterns within the data.

Developed a management tool and reporting platform

Developed a management tool and reporting platform

Using an agile approach, we rapidly developed and implemented in a matter of weeks a promotion forecast management platform. This allowed end-users to efficiently identify forecasts needing review and validate historical performance. Working closely with the end-users in an agile way allowed us to ensure we curated just the right data needed and presented it in an intuitive visual format.

IMPACT

Best in class forecasting

Best in class forecasting

The promotions forecast engine significantly reduced the error rate of prior forecasts across the board. Harder to forecast items such as highly elastic or seasonal items saw dramatic improvements. As a result, there was an increase in confidence with senior leadership.

Time saved

Time saved

Widespread confidence in the predictions meant less spent time with forecasts, and more time focused on building the right program. Thanks to the tools and reports, providing or reviewing forecasts was now a quick and frictionless effort. 

Bottom line improvements

More accurate forecasting, more efficiently managed, meant this retailer could focus on decisions to drive the business. After confidently re-working countless promotions, the program is driving over 90 basis points of improvement in gross profit.

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