Last Updated: February 25, 2022Identifying the most relevant indicators for forecasting consumer demand is imperative to business health. For some consumer packaged good companies, the rise of e-commerce and changing consumer preferences has meant slower growth than preferred. That means CPG companies must adapt their planning models to account for these changes in shopper behavior. For example, shoppers are more cost conscious and highly likely to do research online before shopping in stores. They read product reviews, increasingly make purchases on their mobile devices and are not as brand loyal. Trends that started a few years ago have become forces that CPG brands must grapple with to meet their annual goals. With a booming economy, evidenced by low unemployment and high consumer confidence, it is more important than ever that companies nail their demand forecasts. Those that miss their forecasts run the risk of production delays, product shortages and revenue hits. Conversely, forecasts that are off could lead to companies overshooting their demand and having to markdown products — to list just a few possible outcomes. So, the question needs to be asked, what external data should CPG companies factor into their forecasting consumer demand planning next year?
Most Companies Miss Their Sales Forecasts
The sad reality is that most companies miss their forecasts. Without factoring key leading indicators, companies are more likely to misjudge their demand estimates. In fact, the Institute of Business Forecasting and Planning says that sales forecasts are off by a staggering 37% on average.Next year, it is possible that economic headwinds may shift and plans fall apart. Commodity prices could continue to rise and drive up supply costs, for example. Unexpected tariffs might affect pricing for select categories. Still, other factors might cause changes in consumer confidence. Therefore, it is vital that CPG companies incorporate analysis of external factors like wages, fuel costs, sentiment and online search trends that can shift consumer behavior. After all, bad forecasts can lead to supply chain issues, markdowns and loss of market share with implications on Wall Street for publicly-traded companies. In today’s connected economy, CPG companies need to be constantly monitoring global activity and identifying future changes to consumer demand.
Forecasting Consumer Demand Using Relevant IndicatorsWhile leading indicators vary for every business, certain data sets can provide insights to every CPG company. Here are three important indicators CPG companies should be monitoring:
- Real Disposable Personal Income
- Cass Freight Index: Shipments
- Institute for Supply Management New Orders Index