Managing the Variable Demand of New Products
According to industry estimates, instances of out-of-stock cost retailers a 4 percent loss in category sales and, more importantly for Consumer Products companies, lead to a shopper completely switching brands over 25 percent of the time.
This issue is exacerbated when considering the variability of new products. While CP companies have become increasingly sophisticated in forecasting demand and promotional plans based upon ‘like’ products, there still is a great deal of unpredictability with new products and, because of this, a greater likelihood of out-of-stocks.
Given this, we observed the out-of-stock rates of new-to-world products versus existing products, with the expectation that, due to greater demand variability and unpredictability than their more established counterparts, new products would be harder to find on the shelves.
To provide a representative sample, we focused our observation on various products across multiple categories and spanning the Drug, Grocery and Mass Retail channels. Of the products selected, half were considered new-to-world and the other half were considered traditional, allowing for true comparison of on-shelf availability.
Review and analysis of the data collected concluded that new-to-world products are more prone to out-of-stock and low-stock levels compared to their more traditional counterparts. Highlighted findings include:
- For a leading food manufacturer, their new-to-world product experienced approximately 10 times more out-of-stocks compared to their traditional product.
- For a leading OTC pharmaceutical company, their new-to-world products experienced approximately 1.5 times more low-stock levels when comparing to the traditional products.
- In looking into new-to-world products data specifically, innovative products were approximately 2 times more likely to be out-of-stock than line extensions.
For more, please download our report.