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.
Clarkston recently launched the Retail Experience, a national research initiative led by Clarkston Consulting to provide retail and shopping insights. As part of one of our research studies, Clarkston 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.
Our Key Finding
New-to-world products – key to a company’s branding and profitability – make an extremely compelling case for a segmented supply chain. Their inherent demand unpredictability and varying life cycles, depending on consumers’ adoption, make these products a perfect candidate to follow a different supply chain – one that can better adapt to the changing demand.