Identifying the underlying structure of demand during promotions: a structural equation modelling approach

Abstract

It is widely recognized that promotions enhance product sales. Other factors such as seasonality, special days, customer preferences and economic factors may also have an impact on demand. Yet, endeavours to model the dependency of demand on various factors are scarce. We develop a conceptual demand-factor model to represent the dependency of demand on these factors. We examine and validate the conceptual model through structural equation modelling, using sales data of a leading soft drink company involved in supply chain collaboration with downstream retailers. We find that promotional and seasonal factors have a large and direct impact on sales, while special days like festivals and bank holidays have limited influence. Our approach is versatile and can assist demand planners in understanding the demand during promotional events, and in the planning and execution of promotional deals.