In this handy guide for CPG brands, we summarize the threats supply chain issues pose to e-commerce growth, and look at how digital shelf analytics can minimize risk and uncover new opportunities.
A pandemic, a shipping crisis, market instability and rising costs of production have snowballed to take disruption in the supply chain to a whole new level, with the end not yet in sight. At the same time, rising inflation in many of the world’s biggest markets is putting pressure on the consumer purse while manufacturers find themselves less able to offer price cuts or promotions.
As the ongoing issues eat further into sales and profits for manufacturers around the world, empty shelves continue to pose the biggest threat to growth. e-Commerce teams are digging deep into data and using technology to predict demand, avoid low stock levels and manage profitability.
First, let’s take a brief look at some of the problems supply chain disruption creates for brands that sell online.
What Happens when a Product Runs Out of Stock on the Digital Shelf?
The ripple effect of losing the sale
If your product isn’t available on the shelf, you risk losing the sale to a competitor product. We also know it gives the alternative brand or 3P seller a chance to build long term loyalty. Added to this, being Out Of Stock creates a ripple effect that causes a whole string of other problems. Amazon’s algorithm, for example, doesn’t respond favorably to products in short supply.
How Out Of Stock can reverse your Amazon growth flywheel
Brands that experience exponential growth on Amazon are those that crack the formula for setting Amazon’s growth flywheel in motion - allowing success to breed more success. Put simply, it works like this:
Increasing traffic to a product page will increase sales. Amazon favors brands that enjoy high volumes of sales, so Amazon rewards best-selling brands by increasing their visibility and boosting their reputation. Best-selling brands on Amazon enjoy:
- High share of search
- Added ‘credibility’ and exposure by way of earned badges such as Best Seller or Amazon Choice
- Ownership and control of the Buy Box (if the products are also offered at a good price)
These three things will enable a brand to enjoy sustained sales growth on Amazon with very little effort. Happy days!
…your product runs Out of Stock.
Things can go very wrong very quickly when Amazon’s algorithm takes your availability problem into account; pausing the flywheel of growth and potentially reversing your fortune. There are a number of consequences that can rapidly spiral, creating not only a significant dip in your sales but also opportunities for competitive brands and 3P sellers to win over your shoppers:
Bye-Bye Buy Box
The Buy Box contributes to 85% of all sales on Amazon. Owning and proactively managing the Buy Box is the single biggest thing you can do to optimize sales: being the seller of choice at the point of purchase. Good inventory management and control over your supply chain is crucial to defending your Buy Box.
Amazon’s algorithm decides who gets to own the Buy Box based on who it thinks is providing the best offer. It considers a number of factors including:
- Product availability
- Shipment times
- Eligible for Prime
- Positive or negative reviews
- The compliance of content and assets
- Whether the product is available at a cheaper price from a different store
If a product outstocks, it is not eligible to win the Buy Box in the first place. If you own the Buy Box, Out Of Stocks can lead to the Buy Box being suppressed. With sales at a standstill, your product will rapidly drop in search rank.
Reputation is at risk
Losing the Buy Box to a 3P or unauthorized seller can, in some cases, allow the seller to overwrite your content and sell at their chosen price, posing a considerable risk to your reputation. In times of disruption, maintaining control of the supply chain is an even greater challenge than usual. Understanding which of your products own the Buy Box, understanding how your product is playing to the tune of Amazon’s algorithm, and having visibility of the activity of 3P sellers will help you maintain your competitive position.
Search rank takes a nose-dive
On most e-retailer sites, algorithms are trained to factor in stock levels when it comes to deciding search rank. If your stock runs below a certain level, your visibility will suffer too. While this might not seem like a major problem if your product isn’t available to buy anyway, it can take time to regain enough momentum to achieve your former position.
Delisted! What the heck….?
It doesn’t take long for Amazon, Walmart and others to delist products that are Out Of Stock more frequently than others in the category. Being Out of Stock over a period of time will ultimately result in that product being delisted, so you need to stay in control.
But it’s not all doom and gloom. Brands can use digital shelf analytics to reduce their risk and create strategies that will uncover new sales opportunities.
Finding opportunities in challenging times
A competitor’s loss is your opportunity
Looking on the bright side, your competitors are likely to be struggling to overcome similar problems and their supply chain struggles will present opportunities for your brand, so get ready to welcome new shoppers to your brand when their favorite is unavailable.
Positioning your product as the best available alternative on Amazon
Six steps to win new shoppers
- Monitor competitor stock levels and identify hero products likely to be in short supply
- Optimize the product pages of your best available alternative products. Ensure they are ranking highly in search and outshining their nearest competitors
- Be ready to boost traffic when competitor stock falls with strategically-placed pay per click advertising
- Consider creating simple, PPC ads that appear on competitor product pages
- If Ratings & Reviews are important in your category, make sure you are in a positive place when shoppers evaluate alternative products
- Offer a favorable price to drive conversion and consider promotions or coupons
These tactics can also be applied to your second tier products when your own heroes are at risk of selling out.
Proactively Manage your Accounts
It’s time to arm your e-KAMs with the data they need to support their sales negotiations with retailers.
- Be transparent with retailers and demonstrate the effect low stock has on sales. Sharing the data with your accounts will help you supply stock in greater volumes wherever and whenever you are able.
- Set high stock targets of 50% or more to stay on good terms with algorithms that favor high volumes and forecast for extra demand.
- Monitor stock daily and more frequently if you can during peak events. If there is one alert you don’t want to ignore, it’s a red flag on stock.
- Look at the length of time a product is presenting as Out Of Stock and why. Check for patterns, and look for peaks and troughs during sales events and seasonal highs. Learn from historical data.
Be ready to adjust your pricing and promotion strategy in line with market fluctuation
As costs of production and distribution rise, getting pricing right is an ongoing challenge, and the environment is now more dynamic than ever before.
- Look at competitors' recent pricing and promotions to see how they are countering cost increases now: whether that’s by simply increasing the price or reigning in promotions, perhaps adjusting pack weight and size. This will help to form your own competitive strategy.
- Coordinate promotions across different accounts to prevent price-matching. Staggering promotions will also avoid draining stock too quickly.
- Look out for online arbitrage from Buy Box ‘hijackers’ and unauthorized sellers. These 3P sellers typically buy large volumes of stock at low prices to drain your supply, steal control of the Buy Box and sell your product at their own price.
- And it goes without saying… track prices daily to check compliance and monitor competitor trends.
Supply chain disruption at this unprecedented level is something brands are learning to live with. Ironically, as the demand for online purchasing continues to grow, so do the challenges facing brands in a position to serve those consumer needs.
In this short guide, we’ve covered just some of the ways brands can use digital shelf analytics as a key element of their business intelligence, using insights to inform their decisions and give them the agility they need to change strategy in increasingly challenging times.