Ever tried throwing a dart onto a moving target in high winds while riding on horseback… backward? You basically have because you’re in DTC, and meeting customer demand in 2022 is much, much harder than hitting that bullseye.
Keep in mind: Meeting demand isn’t just staying in stock so you can make the sale. It’s also avoiding excess inventory that weighs down your bottom line.
Starting to sweat? Don’t worry – you’re not the only retailer struggling to meet demand.
These days, meeting customer demand through accurate demand forecasts is a widespread challenge. One that’s difficult to get right and expensive to get wrong.
Afraid of more figurative and literal traffic jams in the supply chain like the issues that permeated 2020 and 2021, these retailers stocked out and then over-ordered to compensate. Now, they’re reckoning with high inventory levels, and lower demand.
Luckily, having the right tools and tactics can ensure brands like yours meet customer demand every time. Here’s how you can hit that bullseye.
Customer demand is the amount of interest people have in certain products or services at a specific time.
The challenge is that customer demand isn’t constant. It can increase and decrease based on external factors, like the pendulum swings of macroeconomics, unprecedented disruptions to the market (such as a pandemic), and consumer needs.
You can also strategically increase demand with, say, the right marketing initiative.
When retailers meet demand, customers can purchase their desired products quickly at a reasonable price without waiting for stock replenishment. This results in a great customer experience and higher profit margins for the retailer.
When retailers don’t (or can’t) meet customer demand, people can’t get the products they want quickly or for a good price, leaving customers frustrated and revenue on the table.
Ecommerce retailers meet customer demand by forecasting related sales ahead of time using historical data and other quantitative and qualitative analysis methods.
Then, they use that information to make an accurate demand plan that coordinates inventory levels, marketing campaigns, and vendor shipping timelines to ensure a smooth end-to-end process that delights and retains the customer.
Not all business errors can ruin Christmas. But demand forecasting done poorly with incorrect data can lock in a brand’s Grinchy reputation for years.
Famously, Best Buy bungled its 2011 holiday demand forecasting. It was so bad that online shoppers received a generic email days before the holiday, canceling orders they’d placed as far back as early November due to “overwhelming demand.” (Bah humbug!)
Of course, not all your stockouts will be this cinematic of a failure. That said, 61% of all customers say they would stop doing business with a brand they loved after 1 bad experience. So, meeting demand is table stakes in today’s hyper-competitive ecommerce market.
That’s because stockouts slow down sales, burn customers, wreck your revenue goals, and more.
If it feels like you’re seeing stockouts everywhere, you are. Adobe found in October 2021 that out-of-stock messages were up 325% from pre-pandemic levels in October 2019. Unsurprisingly, apologizing to customers 325% more than usual seriously impacts your sales!
Customers simply do not have patience for stockouts, a 2004 HBR study found. (We shudder to think what a comparable 2022 study would uncover.)
When customers can’t find what they want, less than half will make a substitute purchase. And nearly a third will buy the item elsewhere.
This means that retailers can lose nearly half of intended purchases when their customers encounter stockouts and abandon ship — making up sales losses of about 4% for a typical retailer.
(Again, that’s back in Ye Olden 2004 Days, so we can conservatively guess that percentage is much higher today.)
|🤿 Dive Deeper: How to stay in control when you’re out of stock.|
If you can’t deliver on demand immediately, your customer won’t stick around. They instead make 1 of these 3 choices:
What customers decide to do depends on the type of product they’re looking at.
For instance, you’ll go to a different grocery store for an ingredient you need for tonight’s recipe. But you might wait for a dress to come back in your size if it’s for a special occasion that’s still months away.
Regardless of the product, however, it’ll take longer for your customer to shake off the poor experience and rebuild trust in your brand.
A little graciousness and accommodation can go a long way in doing just that (like selling on backorder).
If your customers feel like you’re taking a personal interest in their frustrations and can see that you’re trying to fix the problem, they’re way more likely to stay loyal to you in the future.
To protect your reputation and retain customer trust, you must meet demand as best as possible. And that means relying on robust backup plans and transparent communication when meeting demand isn’t possible.
Otherwise, you’ll open the door for your competition to steal shares from your unhappy customers.
But not all stockouts are accidents (or bad for business). Brands in verticals like luxury fashion or streetwear often limit a “drop” to preserve exclusivity and generate buzz around new product launches.
This is called scarcity marketing. And though it’s compelling, it can often backfire, especially when the advertised scarcity isn’t true.
Similarly, falsely advertising having plenty in stock can feel like a bait-and-switch to customers. Especially in a cross-channel shopping experience (where what’s available in your social shop isn’t actually in stock according to your website, for instance).
|Keeping your product availability up-to-date and consistent across channels is a super easy way to earn customers’ trust. Luckily, you can centralize your inventory data across multiple locations in real-time with Cogsy. Try for free.|
But your brand’s reputation doesn’t just mean your perception according to the public; it’s with your suppliers too. They rely on you to provide accurate production plans.
So, if you’re way off the mark and panic order willy-nilly, they’ll begin to trust you less.
When this happens, providers will typically use their own forecasts or revoke discounts to protect their business’ viability.
(This can be especially dangerous if your supplier predicts demand conservatively, and it turns out your long-term forecasts were right all along.)
Say you overestimate customer demand and overorder. Well – you’ll create a truly unfortunate chore for your team: figuring out how to move excess inventory… before it turns into dead stock.
These consequences multiply as retailers struggle to offload old seasonal goods while attempting to make room for new products.
This is called the “bullwhip effect,” which means retailers have limited time to move goods before they become no-goods.
Because of this bullwhip effect, inaccurate demand forecasting can harm your profitability and reputation.
But it can also show up in ugly ways, like overcrowded storage facilities and rushed discounting tactics. These responsive initiatives tie up working capital, accumulate holding costs, and hurt your bottom line.
As you know, your revenue depends on happy customers actually buying from you. So, when unhappy folks abandon their carts, that’s a sale that’s instead going to the most convenient or compelling competitor.
After all, remember Kmart? Not really? There’s a reason for that.
Kmart missed the Y2K memo and didn’t invest in supply chain technological upgrades as quickly as their main competitor, Walmart, which competed with them on price. This meant that Walmart usually had products in stock when Kmart’s shelves were empty.
The market’s verdict was swift: Between June 1998 and June 2000, stock prices for Walmart rose 82% while Kmart’s dropped 63%.
In 2002, Kmart filed for bankruptcy, closed hundreds of stores, and merged with Sears Roebuck in 2005. That is a Sears-iously (forgive me) anticlimactic way to go out.
What can we learn from this? Having inventory visibility — and inventory control — across your supply chain is your best bet for meeting customer demand. And it’s all-but-guaranteed to have a big payout.
Here’s how to do that without falling into Kmart’s pitfall: Create a smart but adaptable demand plan based on the benchmarks you know for certain.
Then, set aside plenty of resource allocation for pandemics, inflation, tornados, sea monsters, left-field pop crazes, and whatever other ecommerce challenges come your way.
|You don’t have to do all that demand planning alone. Cogsy builds demand plans that help brands generate 40% more revenue. Try for free.|
Balancing inventory and demand is a delicate science. Too much inventory in “safety stock,” and you’ll run out of storage space and clog your cash flow.
This exposes you to potential excess inventory complications like dead stock. Meanwhile, too little inventory, and you’ll run out of stock, frustrating customers and suppliers alike.
So, think about it this way: When forecasting the weather, you must know the area’s ecosystem. Then, consider how it interacts with neighboring systems and review historical trends over many years to predict whether it’ll rain tomorrow. (And it still might not rain tomorrow!)
Similarly, demand forecasting and demand planning won’t work in isolation.
To meet customer demand, you’ll need to understand your customers and listen to what they say they want next. All while weighing their desires against historical sales and market trends.
The most market-intelligent, historically-backed demand forecast won’t do you much good if you don’t know your target customer.
Luckily, you have a lot of tools at your disposal for learning more about your customer segments (a fancy name for groups of buyers with similarities like geographical area, age, income bracket, and lifestyle).
By putting in this work, you validate that your products meet demand that’s actually there in the first place. After all, it’s much easier to channel existing demand than create it.
Trends on search engines like Google are a fascinating predictive tool for anticipating demand. Les Binet, an econometrics consultant, found a positive trend between a brand’s share of search and market share.
Basically, this means that as a brand’s share of search increases (for instance, you get a lot of website traffic for a search term like “mobile headset”), market share typically rises as well.
You can use free tools like Google Trends to learn more about what your audience is looking for.
Once you find your target customer, remember that the audience segmentation you may be targeting on advertising platforms is not necessarily who you’ll reach.
Similarly, customer information delivered by data brokers might not perfectly mirror who buys from you.
Moreover, you may consider using customer onboarding software that can give valuable analytics and help improve customer experience.
In fact, Harvard Business Review tested the accuracy of the digital profiles that data brokers sell. The results were shockingly inaccurate.
The age tier was only correct 23% of the time, and gender was right less than half of the time.
That isn’t to say, “don’t use audience segmentation on ad platforms.” You absolutely should to reduce wasting marketing dollars on the wrong people.
But it is a great reminder that when it comes to knowing your audience, sometimes the only final data point you need is your own gut check.
|🤿 Dive Deeper: A comprehensive guide for increasing demand.|
As the saying goes, past behavior is the most reliable predictor of future behavior. Meaning, your historical data likely contains a general picture of what your future demand planning should include.
Most retailers have systems for storing past inventory, marketing, and sales data.
Though, when we say “systems,” we’re talking about a Rube Goldberg machine of forecasting inventory in Excel, pulled reports, quarterly presentations, and old POs. (While not perfect, some data is better than no data!)
In fact, Oliver Guy, Global Industry Architect at Microsoft Retail, shared on a RetailWire panel:
““If you cannot measure it, you cannot manage it. Retailers have to prioritize visibility first before they can do anything else.”
And though “prioritizing visibility” is what we at Cogsy are all about, it’s important to acknowledge that wrangling all that data is hard work.
Often, retailers hire demand planners (yup, it’s a job!) to audit their existing data, then forecast accordingly. However, this approach is eye-wateringly expensive.
Even 1 in-house demand planner costs your business upwards of $100k a year.
You can alternatively supplement your historical data analysis team with Cogsy.
Our platform functions as a “teammate” that pulls in your disparate data sources, then turns that data into demand forecasting insights you can immediately implement.
(Plus, the tool does this for 35x less than what you’d pay a demand planner.)
|Integrate your GA account with Cogsy to connect individual product pageviews to its associated SKU. You can then see which product pages trended high over the past year and plan accordingly. Try for free.|
In most industries, customer demand relies heavily on seasonal trends.
For instance, menorahs are popular holiday purchases before Hanukkah, but you usually don’t see them on shelves in May.
Likewise, sprinklers and inflatable pools are highly sought-after items during heat spikes, but during a snowstorm, you likely won’t get an email promoting Slip-n-Slides.
Knowing when your products are “in season” can help you meet the spikes in sales. That’s where forecasting seasonal demand comes in.
A blend of historical information, observations of customer behavior, surveys, and gut sense adds nuance to your inventory planning.
Plus, it can keep you from ordering the same number of menorahs for May as you would for November, leaving you with a lot of dead stock.
|Account for your customer’s segment and geographic area as you plan seasonally. Seasonal demand in Japan will look different than in New Zealand. Likewise, seasonal demand may show up differently in online and in-person channels.|
Data hygiene isn’t the coolest DTC trend, but it could save you millions of dollars (plus lots of embarrassment).
Take Target’s first attempt to expand into Canada back in 2014, for example.
It was the perfect storm of rushed land grab and inventory accuracy failures. Poor data hygiene caused a chain reaction of delays that led to warehouses full of Barbie Jeeps, empty store shelves, and an ultimate loss of $941m CAD.
To prevent over or under-ordering inventory, you need to know your minimum and maximum possible inventory levels.
How little can you have on hand while still meeting demand, and how much can you hold before you run out of space or cash? Your optimal inventory level is in between those numbers.
|🤿 Dive deeper: How to calculate EOQ.|
Next, to plan inventory well, you need your historical inventory data to be accurate for your forecasts to work. That input happens at the beginning of a product’s life, from the first time you assign it a SKU.
After all, your projections are only as accurate as the data you feed to them.
|Remember to clean up your SKUs and not invent too many variables for each product. If you do, tracking that product’s trends over time will get infinitely harder.|
So, your best bet for accurate inventory level tracking is to use a SKU tool that can serve as a source of truth.
By integrating these tools, you can create production orders that automatically include necessary products and quantities, outsourcing the toughest part of inventory planning to Cogsy.
Best of all? You can sketch out your brand’s demand for the next 12 months, so you can stock up accordingly to meet this demand.
You can even leverage this demand plan to negotiate better vendor contract terms.
Your product is in high demand, your marketing is performing well, and customers can purchase your product through a variety of channels. Great!
But now, your operational backend needs to be ready to handle the deluge of demand. This inherently leads to a customer experience.
That said, things will sometimes go wrong, like shipping mixups, out-of-stock frustrations, and damaged packaging. All of which can put a damper on the customer experience. The more orders you fulfill, the more opportunities for these sours of mishaps.
So, when demand increases, you’ll need a strong, well-trained customer support team to help customers quickly resolve any issues (and prevent them from happening again).
Customer support does a lot of heavy lifting to meet demand and retain those customers for the long haul. That’s why it’s important to ensure a seamless customer support workflow.
And a satisfactory, above-and-beyond interaction with your support team can turn a bad customer experience around.
This thoughtfulness goes a long way in retaining your very-expensively acquired new customer.
“If you can meet expectations with what you’re promising, that’s already like more than 95% of brands,” Eli Weiss, Senior Director of CX & Retention at Jones Road Beauty, told us on The Checkout.
But if you can’t do that, the customer experience expert recommends building a reputation as the brand that will respond and care when things go wrong.
It’s tough enough accurately meet customer demand for a product you’ve carried for a while. It’s even harder for a new product with no historical sales data.
Building demand forecasts for new products without this information can feel even more like guesswork.
But it doesn’t have to be. Cogsy’s new product planning feature builds accurate forecasts by comparing your new product to comparable existing products in your catalog.
Then, it uses historical trends for those products to predict how much inventory you should order to support your new launch.
But whenever you launch a new product, that new SKU has the potential to cannibalize similar SKUs in unforeseen ways.
So, factor that possibility into your marketing and merchandising strategy by promoting older SKUs soon after a new launch.
|Incorporate backordering tactics into your new product launches. There’s no better way to gauge demand than by amassing a waitlist of interested and patient customers before placing a PO!|
Accurate forecasts are your top resource for meeting customer demand. You want the right inventory at the right time, with as few resources wasted as possible.
Without a forecast, how you order inventory is up to gut work and educated guesses. And not stocking out or over-ordering with this approach is nearly impossible.
Instead, inventory forecasting software like Cogsy can turn this into a science.
Cogsy is an operations platform that empowers DTC brands to find signals in the noise and take smarter actions to reach operational excellence.
With Cogsy, you can:
But don’t just take our word for it – try Cogsy free for 14 days.
Increased demand can be a sudden surprise (like a rush to buy snow gear before a snowstorm). Or, it can be manufactured (literally the purpose of your sales and marketing teams). Intentional demand increases are usually part of a larger demand plan that includes a marketing strategy alongside an inventory plan. To meet unanticipated demand out of nowhere, retailers must adapt quickly to tactics like product bundling and special offers.
Meeting demand is the main responsibility of any retailer. You’ll have happy and loyal customers when you can provide the goods or services your customers want at the right time and price. Meeting demand accurately is difficult, but ordering the right amounts of inventory can create less waste and generate more revenue.
The easiest example points to holiday shopping trends like Black Friday and Cyber Monday. Anticipating the holiday season, consumers want to take advantage of good deals to buy presents for loved ones ahead of time. Retailers have adapted to this annual demand shift by planning marketing campaigns and purchasing inventory months ahead.