Modeling the Impact of Holidays and Events on Retail Demand Forecasting in Online Marketing Campaigns using Intervention Analysis

Abstract

This study explores the impact of holidays and events on retail demand forecasting using intervention analysis within a SARIMAX model framework. Retail demand forecasting is critical for inventory management and supply chain optimization. Traditional forecasting models often struggle to account for irregular events like holidays, leading to inaccuracies. This study aims to address these limitations by incorporating holidays and events as exogenous variables in the forecasting model. The dataset, consisting of retail sales records across multiple product categories, was preprocessed to handle missing values and standardize date formats. Binary indicators for state holidays and school holidays were created, along with temporal features like the day of the week and hour of the day. The stationarity of the time series was confirmed using the Augmented Dickey-Fuller (ADF) test, with a statistic of -48.67066391486136 and a p-value of 0.0. The SARIMAX model (1, 1, 1)x(1, 1, 1, 24) was developed and evaluated. The model achieved an Akaike Information Criterion (AIC) of 363321.861 and a Bayesian Information Criterion (BIC) of 363375.269. Key coefficients included the state holiday variable at 0 (p-value: 1.000000) and the school holiday variable at 165.2158 (p-value: 0.919689), though neither were statistically significant. Diagnostic checks revealed significant non-normality and heteroscedasticity in the residuals. Forecasting accuracy was assessed using Mean Absolute Error (MAE: 8057.069376036054) and Mean Squared Error (MSE: 809008799.3517022). The Mean Absolute Percentage Error (MAPE) was not computable due to division by zero. Visualizations comparing forecasted versus actual demand highlighted the model’s strengths in capturing general trends and seasonal patterns but indicated challenges in accurately predicting demand during holidays and events. The study underscores the importance of incorporating holidays and events into demand forecasting models and suggests further refinement and the inclusion of additional variables for improved accuracy. Future research should explore alternative modeling approaches and validate findings across multiple datasets to enhance the generalizability and robustness of the forecasting tools.