Why Brands Struggle with the Out of Stock Question
The biggest question in CPG right now is: How do I stay in stock?
It’s not an isolated problem – more brand leaders tell us that there’s more than out of stock issues keeping them up at night.
It’s the lack of visibility to the when, where, why, and the impact of out of stocks across retailers that is paralyzes brands from addressing the issue.
What if we stopped thinking about out of stocks as a tactical problem?
Instead, let’s apply a revenue growth management lens to out of stocks. Let’s build a strategy that brings together pricing, promotion, availability, and assortment. Then, you can think about revenue generation and profitability.
Challenges to the RGM Approach:
- Untimely data
- Inadequate data
- Data used reactively – only to explain what went wrong
When this happens, manufacturers tend to respond to drops in sales volume by pushing promotional and marketing investment to drive incremental volume, regain lost search ranking, and mend relationships with retail partners.
Incrementally, this works. Until the next out of stock.
But reactionary practices aren’t sustainable.
The Importance of Accurate, Actionable Data
Before brands change their mindset, you must adjust the “ingredients” being used to make decisions. For brands to truly understand the magnitude and impact of their out of stock landscape, they need data for…
- Daily zip-code level pricing and availability across multiple retailers
- Competitive pricing and availability
- Keyword search rankings
Keep in mind, this data is only as valuable as it is accurate.
2 Ways to Think More Strategically About Out of Stocks
1.Reduce & Prevent
Look past the inventory issue as a contributor to poor sales and think about an out of stock as an outcome of missed opportunity.
In other words, if the out of stock is the outcome of too large of promotion, missed projections from demand planning, a supply chain disruption, or some competitive circumstance… then what you need to do is correct and address the factor(s) that caused the out of stock.
When brands make this change, the conversations shift from how do we regain our search position to:
- What SKUs, in what places, allow us to maximize revenue without going out of stock?
- What promotions drive incremental volume or sales with product available throughout the duration of the promotion?
- What retailers and, when applicable, what specific stores represent my biggest out-of-stock revenue risk?
As you use competitive data to explore the answers to these questions, you make decisions that prevent out of stocks and have longer term impact – such as solidifying your search position longer than your next out of stock.
2. Compete & Collaborate
Even though out of stocks are potentially damaging in terms of sales and brand loyalty, there is a significant strategic opportunity that sits the right knowledge.
Start with a thorough understanding of the relationship between your out of stocks and your competitors’ out of stocks. All brands fear being substituted, but for example, what do you need to do to be the substitute of choice when your competitor is out of stock?
Look at competitive data to see when your competitor is out of stock and how you or other brands are positioned during the competitor out of stock to fill the space.
Plus, out of stocks hurt retailers because it can mean a shopper goes someplace else for the product. If you can demonstrate that you’re open to reducing out of stocks in collaboration with your retail partners, the combined possibilities are endless.
Use your data to find opportunities that are mutually beneficial.
Out of Sight, Out of Mind
Being out of stock means that your shopper can’t buy your product, and you’ve lost a sale. However, the failure to elevate and bring visibility to potential losses and strategic opportunities surrounding out of stocks also results in lost sales of a potentially greater magnitude.
For brands to finally answer the “how do I stay in stock” question, you must invest in competitive data. Competitive data will answer complex questions and provide strategic direction at the product and store level to create lasting, revenue-impacting change.