Investments of brands and retailers aim at turning potential customers into paying customers. When customers decide to buy a given product, but they learn that the product is no longer available, both the customer and the retailer or brand face a suboptimal outcome. Out-of-stock scenarios harm customer loyalty and lower revenue for brands and retailers while leaving behind frustrated consumers. This is all happening in a new retail world where digital and physical retail spaces are increasingly merging.
The retail industry has undergone fundamental changes over the past ten years. Consumers, brands, and retailers equally feel and embrace new ways of shopping. While many still go to Brick and mortar stores, everyone knows about the importance of online shopping. Through new IT infrastructure and online shopping, the modern consumer has also developed a virtually unlimited reach across marketplaces and products. No matter where in the world consumers are, they can effectively acquire anything they want at any time.
Negative effects from Out-of-stock
These developments increasingly pressure brands and retailers to protect their unique selling points. Branding differentiates one from another to attract the consumer. Marketing promotes products to customers. Today this is, of course, driven by online marketing. Successful branding and marketing will eventually convince consumers to buy a product – but what if the desired product is out-of-stock?
For one, the retailer or brand loses a sale meaning that all their branding and marketing efforts accumulate in a revenue loss. On top of that, the consumer is not happy either. They are not getting the desired product which can be frustrating and may shape a negative image of the retailer and brand. Consequently, customer loyalty is also harmed. With today’s massive selection of supplementary products and retailers, scholars conclude that the modern customer is extremely disloyal in general. It is simply very easy to switch to a competitor brand or store. In the worst case for the industry, the customer may also realize that they perhaps do not need the product after all.
Managing a recovery
Recovering from out of stock is partly possible but will never cure all the harm done. Retailers and brands have different options for action. They can take the order anyway and notify the customer about a delayed delivery. This is risky because it further puts reputation and customer loyalty at risk as it may further frustrate the customer. Unlisting the item is also suboptimal as it may impair valuable SEO and other online marketing efforts. Another option would be to suggest related items or offer to notify the customer when the item is back in stock. All the above options are valuable, but it would be much better if brands or retailers did not need to consider them all together.
Retailers can, of course, minimize out-of-stock scenarios by stocking up on products to greater degrees. But this does not only increase risks related to inventory investments but also impairs retailers’ agility. The ability to quickly react to changes in consumer demand is vital to succeeding in today’s retail environment (link to the previous article). In reality, warehouse capacity and internal capabilities also limit the number of stock units retailers hold.
No more Out-of-Stock
While IT innovations challenge existing retail practices, they also offer tools that can benefit retailers and brands. One such tool is dropshipping. Implementing a dropshipping setup allows retailers to offer products shipped directly from brands and other partners to the customer. Out-of-stock scenarios on the retail level can be bypassed because brands typically hold very high numbers of the same items. Overall drop shipping allows to optimize product availability and thus increases conversion rates. At the same time, customer loyalty improves.
On top of that, dropshipping allows increasing the product range while lowering inventory risks. While economic calculations are improved, dropshipping also benefits environmental considerations. Instead of sending the item from the brand to the retailer and then to the customer, dropshipping optimizes shipping routes and sends items directly from the brand’s warehouse to the consumer.
Altogether, out-of-stock scenarios are among the most harmful events for brands and retailers. Customers, brands, and retailers end up in a lose-lose-lose situation.
Dropshipping offers a solution that utilizes existing capacities within retail networks and requires little investment. Exchanging product information, stock messages, and pricing information between retail partners allows to optimize the number of products offered while reducing investment costs. Through this, dropshipping can turn many lose-lose-lose scenarios into win-win-win scenarios.