Whenever organizations are faced with a new trend in the market, there is a risk of a misinterpretation of the true meaning of this new concept, generating a gap between the practices and initiatives developed in the companies and the actual use of opportunities. The emergence of Omni-channel is one such case. Omni-channel cannot be mistakenly treated as a migration from traditional channels to virtual channels, enacting the burial of classic physical stores; but rather how the synergistic management of sales channels, in order to provide the best possible experience to customers.
The boundaries between physical and digital are blurring, but that doesn't mean traditional channels are dead. These just integrated to enhance the shopping experience! This becomes even more evident when the buyer's habit of researching the product on the internet and later trying and buying it in stores arises. Looking at it from this angle, despite migration trends towards virtual channels, stores brick and mortar will remain alive, mainly for companies of fast-moving consumer goods (FMCG), who base their business on the instant availability of products to the end consumer.
This whole new context of evolution in purchasing habits means that retail cannot be seen in the same way. Retail is the showcase for a shopper increasingly connected and demanding in relation to the quality of the consumption experience. The new consumer is relentless about the lack of products: going to the store and not finding what you are looking for inevitably generates frustration, which is harmful for both manufacturers and retailers.
Out of stock consequences
The cost associated with the lack of products on the shelves or “Out of stock” is difficult to measure, because it differs depending on consumer response. Gruen, Corsten and Bharadwaj have a reference study in the literature that sought to measure consumer response to stockouts based on the following possibilities: replacing the item within the same brand, buying the item from another brand, buying the item from another store, postponing the purchase or simply not buying item none.
| Attitude | Retailer | Manufacturer |
| Replace the item with the same brand | Risk of consuming lower value products | No financial losses, risk of consuming lower value products |
| Purchase the item by another brand | Risk of consuming lower value products | Loss of revenue, brand erosion and risk of competitor loyalty |
| Purchase the item from another store | Loss of revenue, deterioration of the store's image | Brand image wear |
| Fold | Loss of income and deterioration of image | Brand burnout, loss of revenue and loyalty |
| postpone the purchase | No financial losses, just image | No financial losses, just brand image |
Regardless of the consumer's reaction, the lack of products on the shelves is negative for the manufacturer. Buying from a competitor or giving up on buying is serious, the first being even worse, because once seduced by the competition, the customer is even more difficult to win back. If by chance there is a replacement for an item of the same brand, the consumer tends to look for cheaper options, generating a reduction in margin. Even when, in principle, there would be no financial losses, such as postponing the purchase or purchasing the item in another store, the consumer has the feeling of not being able to count on the availability of his preferred brand, and this may weaken his propensity to keep looking for this brand.
Thus, on a scale of severity, we would have purchases from a competitor and withdrawal from the purchase at the top, and substitution with products of the same brand, searching at another store and postponing the purchase at a second level.
The research result (Figure 1) shows that in only 37% of cases there are no major financial losses for either the manufacturer or the retailer (postpone purchase and replace with an item of the same brand), in 31% of cases there is damage to the manufacturer (replacing the item with another brand and withdrawing from the purchase), in 43% of cases there is a loss for the retailer (buying the item in another store and withdrawing from the purchase) and in 11% of cases there is a loss for both (withdrawing from the purchase) .
Figure 1 - Consumer responses to disruption
Source: Gruen, Corsten and Bharadwaj
Naturally, consumer relations with the product interfere with the consumer's response to the rupture at the point of sale, such as: the type of product, whether the purchase is planned, on impulse or urgency, and the customer's loyalty to the brand. More recently, similar research carried out by AC Nielsen and published by the journal World Logistics observed that consumer behavior in relation to the lack of products depends a lot on the segment in which the product was inserted.
Figure 2 - Consumer behavior in relation to the lack of products by segment
Source: AC Nielsen
For products such as cooking oils there is very little loyalty to the brand: in 69% of cases the consumer opts for another brand. We see the opposite behavior for personal care products, where, when the consumer cannot find the desired brand, in 51% of cases he looks for the same product in another establishment. It is also important to emphasize the importance of having products available in the store that are characterized by impulse purchases, such as chocolate, which, in the event of a stockout, end up causing losses to both the manufacturer and the retailer (in 17% of cases there is a withdrawal from purchase).
Conclusion
Despite new technologies and migration trends for virtual commerce, the availability of products in physical stores is still of paramount importance for the business of FMCG. In addition, the new reality of an even more rigorous consumer, demanding products whenever and wherever they want, generates the need for more assertive control of supply and inventory on shelves.
As noted, despite this scenario and all the harm associated with the lack of products, the global average of Out of stock retail sales is still high, around 8,3%, which means that, for a purchase of 10 items, the consumer will have a 58% chance of not finding at least one product, causing losses to all involved.
With this in mind, there are huge opportunities for consumer goods companies to increase sales by taking advantage of pent-up demand through cost reduction. Out of stock. To this end, it is necessary to detect the main reasons and measure losses and investments in financial terms, in order to analyze the cost-benefit ratio of a more assertive supply of store inventories. Only then would it be possible to develop initiatives considering efforts compatible with the potential benefits to be captured.
References
Gruen, Thomas W. and Daniel Corsten (2008), A Comprehensive Guide to Retail Out-of-Stock Reduction in the Fast-Moving Consumer Goods Industry.
Gruen, Thomas W., Daniel Corsten, and Sundar Bharadwaj (2002), Retail Out of Stocks: A Worldwide Examination of Causes, Rates, and Consumer Responses.
Zinn, Walter and Liu, Peter C. (2001), Consumer Response to Retail Stockouts.
Nielsen – Disruption: Causes and Impacts in the supply chain and consumer behavior.
Claudio Czapski: The impact of disruptions in retail and the involvement of the logistics operator (Revista Mundologística – Edition 10 MAY/JUN 2009).
Claudio Czapski: Retail and Industry do not speak the language of the consumer (ECR Brasil).
