Maximize Holiday Digital Commerce Sales: Plan to Substitute and Backorder

By Claudia Clemens | October 18, 2022 | 1 Comment

Supply ChainPower of the Profession

As a child, I remember Black Friday shopping was an event. We would scour the newspaper ads to find deals. And, with our bellies still full from Thanksgiving dinner the night before, we’d get up early Friday morning to shop. We had a game plan, prioritizing which stores to drive to first based on who was most likely to run out-of-stock if we weren’t there early. I can’t remember ever coming home with any great purchases. My mom must have just enjoyed the hunt, and … well, us kids liked it too.

Today is a different world with the convenience of digital commerce and the ability to browse multiple products within minutes and buy at the click of a button. What hasn’t changed is anticipating what will run out of stock during super-peak sales events like 11/11 Singles Day, Black Friday or, this year, Amazon’s Early Access Sale. In the past couple of years, supply availability has been particularly volatile with the amount of supply chain disruption.

11/11 Singles Day, Black Friday or Amazon Early Access are events characterized by a very short sale period when an exponentially high volume of consumer demand is expected in a tiny window of selling opportunity.

The small sales window leaves little room for mitigation if a product goes out-of-stock during the event. In this competitive time, if a brand goes out-of-stock, a consumer may go to a different brand or a different marketplace to find an alternative resulting in a lost sale that will not be recouped once the event is over.

Due to the high volume packed into a consolidated time, supply chains that are space and capacity constrained further inhibit the ability to support these large, fast volume spikes and contribute to stock-outs. Couple these unique sale events with the ongoing supply chain volatility, and it’s a pairing as hot as potatoes and gravy.

Don’t Miss the Opportunity to Serve Consumers

Digital commerce has the unique ability to offer alternate options to consumers when physical inventory is not on hand.
A U.S. Gartner Consumer Community (GCC) survey1 and Research by Consumer Brands Association (CBA)2 demonstrated that supply chains are missing the opportunity to serve consumers by offering alternate options when out-of-stocks occur.

Research showed that more than half the time when an item was out-of-stock, consumers actively sought to substitute their purchase for something similar.2 By contrast, consumers in China and Japan more frequently delayed their purchase entirely or purchased from another online store compared to global averages.2 The below consumer decision matrix, based on the GCC and CBA studies, can provide insight into substitution and backorder planning.

Risk of Out of Stock? Take Action!

To maximize holiday sales, predefine an out-of-stock action for every primary SKU. Supply chain leaders should cross-functionally segment online products based on the planned out-of-stock activity to Substitute, Backorder or Stock-out.

Substitute: Common products are more substitutable and have greater market competition. Map similar features, value, price-point and profitability. The benefit should be in favor of the consumer when offering a substitute.

  • Define substitution logic:
    • Lower-priced, out-of-stock SKU vs. higher-priced substitution: Which price will be offered?
    • Will substitutions be recommended or defaulted in browsing logic?

Backorder: The more unique a product is or, the deeper the sale discount, the more consumers may be willing to wait for backorder delivery.

  • Define backorder logic:
    • Maximum backorder wait-time allowable. (Usually less than two weeks).
    • Clear expectations and messaging to consumers.
    • Operational impact and capability to fulfill on time.
    • Ability to set maximum backorder unit thresholds and turn-off backorder logic once reached.
  • Use caution when planning the timing of backorders near time-sensitive holidays.
    • Plan conservatively to ensure consumers don’t miss a delivery intended for Christmas.
    • Stop taking backorders before supply and lead times approach the shipping cutoff to meet Christmas delivery.
    • Where applicable, message boldly and clearly on the product page that the order will not arrive by Christmas.

Stock-Out: Common examples of planning to stock-out:

  • Supply is unreliable or too variable to offer backorder.
  • The market is too competitive for consumers to wait and will purchase elsewhere.
  • Item is end-of-life with no replenishment.
  • Sale has a limited volume agreement from a vendor at the sale price and cannot take orders beyond a specific amount allowable.

Supply Chain Leaders can maximize their holiday selling results by building a proactive backorder strategy to enable substitutions and backorders. Sales with a future delivery date require planning, measuring, and coordinating.  The S.W.I.M diagram below represents the four pillars of building these proactive strategies:

For more information about why backorder strategies are beneficial and how to build proactive backorders, see Gartner research: Why Brands Need Proactive Backorder Strategies for Digital Commerce and How to Build a Proactive Backorder Strategy (subscription required).

Let’s make holiday shopping about getting the products you want instead of hunting for availability. I hope you find the in-stock products you’re seeking or the ability to purchase on backorder this holiday season.  Let me know about your shopping experiences on LinkedIn: https://www.linkedin.com/in/claudia-clemens.

 

Claudia Clemens
Senior Director Analyst
Gartner Supply Chain
Claudia.Clemens@gartner.com

 

Listen and subscribe to the Gartner Supply Chain Podcast on Gartner.comApple PodcastsSpotify and Google Podcasts

The Gartner Blog Network provides an opportunity for Gartner analysts to test ideas and move research forward. Because the content posted by Gartner analysts on this site does not undergo our standard editorial review, all comments or opinions expressed hereunder are those of the individual contributors and do not represent the views of Gartner, Inc. or its management.

Leave a Comment

1 Comment

  • Camilla says:

    I have a small business selling childrens toys in a marketplace and is my first Black Friday and I’m both scared and excited. Mentally I felt prepared but with some of your tips I realized that I need a Plan C. I will take your advice into action! Thanks for this post at this time of year!