Many retail challenges, like promotions, impact and require coordination across many areas of the business. We find it helpful to work across functional areas and bring different perspectives to the table. Below are some thoughts about promotions from the POV of an Inventory Manager.
Inventory Managers can see that there is no turning back time on the discount clock. Promotions are totally ingrained into our customer’s buying behavior, even (or especially) for the most loyal of customers. What do we see?
Customers will wait for promotions on products they already want to buy.
We’ve seen products where up to 90% of sell-through happens at discounted prices, products which consumers will not buy at regular price. These items could be fashion items or consumable products that are on sale frequently.
If customers know significant price drops are coming, they can wait to buy the fashion item. And the consumable product has a shelf life that extends until the next promotion, why not stock up?
Other circumstances we've seen are retailers who have one or two major sales per year, during which they do the majority of their business. They sell expensive items at a good discount.
Why do Inventory Managers care?
As we condense our sales of our items or business into fewer time periods the volatility increases, and demand is more challenging predict. Achieving high service levels for our customers is more difficult and expensive. - It’s harder to move inventory through the supply chain quickly in response to sales. Sometimes, to chase demand, we have to use alternate sourcing, which increases costs and strains the supply chain.
Customers are given offers they cannot refuse.
Limited time offers and bundled offers can convince customers to buy. They may purchase items they don't really want or spend more than they planned.
Free shipping on orders over $50
$20 off when you buy $50
40% off marked items, today only!
This is awesome, right? From a customer standpoint, the risk is limited, because they can always take the items back, and we do get sales we might not have otherwise.
How does this impact Inventory Management?
It’s not unusual for 25% of online fashion sales to be returns and returns for these types of promotions are even worse.
This impacts our stocking strategies. Sometimes we cannot track it or transfer it because the items aren't ranged to sell in that location. We have to mark it down to sell it. Other times we have stores package it to fulfill online demand.
It’s almost too easy to connect with Customers
The email you send out today impacts what customers buy tomorrow. Anywhere from single person to all loyalty or potential customers could be targeted. When customers share promotions on social media and third party sites publish them, the promotion audience can grow amazingly fast.
What burden does this place on Inventory Management?
We may see sales spike and discounts applied, without insight into the promotional types or vehicles. If we don't know in advance what offers, we can't respond in time to get inventory in the best locations. Even if when we do know a promotion is coming, the results are difficult to forecast, because we don't know important details.
What can retailers do?
These practices add a lot of uncertainty, causing us to lose sales or increase costs. It’s a balancing act; we need to work together across functional areas to make the best decisions.
Share data and create good analytics
If the data is not centralized, each group may only see a part of the puzzle. Don’t assume everyone is looking at what you are. Information is the first step.
Are we able to answer important questions with our data?
- Does pantry loading drive traffic or higher spend overall? Under what circumstances?
- Are we running promotions on competing products at the same time?
- What promotions are driving cherry pickers?
- How much inventory is orphaned by returns coming into stores? What is the impact of these un assorted items on markdowns, store labor?
- What is our promotional service level? How much inventory does it take to support different types of promotions?
Objectively assess our forecasting ability
Promotional forecasting is challenging, but some practices make sales even more difficult to predict:
- Promotions that recur within a short time frame
- Promotions with unpredictable audience, e.g. social media for example
- Promotions that move majority of demand to short time frames
A review of promotional predictability could reveal more.
Reviewing promotions can help categorize the impact on the promoted item's sales, and the impact on other items and locations. Understanding the uncertainty associated with the promotions helps highlight promotional risk.
These insights can inform stronger decisions upstream and downstream, encourage tighter collaboration.
Understand and agree upon stocking strategies
Imagine being able to have these discussions:
These items are frequently on promotion, have huge pantry loading effects. - 80% of sales are at a discount. Do we want to continue these promotions? If so, what should our stocking strategy be?
Another group of products are expensive, highly price sensitive, and are rarely promoted. We are confident in the total sales but to have high service level at the store, we will risk overstocks after the promotion. We'll hold inventory back at the warehouse, replenish during the promotion and offer customers home delivery if we stock out.
Occasionally, let the tail wag the dog
Listening to your Inventory Managers and Supply Chain can help you see your promotions from a different perspective and may inspire you to tweak and align practices to improve your promotional performance.
About the author
Linda Whitaker has worked with hundreds of retailers applying data science and artificial intelligence to a wide variety of areas including merchandise planning, pricing, promotions, customer insights, demand forecasting, replenishment, allocation and supply chain. Prior to joining us at Cognira, Linda served as Chief Science Officer at Quantum Retail Technology (which she co-founded) and 8th Bridge (now part of Fluid, Inc.).