We inherently know that a stockout (aka an out-of-stock or OOS) is a frustrating experience for all involved in eCommerce. What isn’t always appreciated is how just one stockout event with a single customer can have a ripple effect across a retailer’s eCommerce revenue and reputation.
Short-Term: Losing the Sale(s)
Meet Christine, who is in the market for a new set of cleats for the upcoming softball season. Christine finds WickedAwesomeSoftballGear.com via online search (all that marketing investment on the seller’s part is paying off!). While on the site, she adds the cleats plus new socks, batting gloves, and a new bat to her cart. She submits her credit card info, makes the purchase, and excitedly receives her confirmation email from the site. But…two days later she gets another email saying that the bat is actually out-of-stock.
In their paper on Measuring and Mitigating the Costs of Stockouts, researchers from Northwestern, Duke and MIT observed that a stockout on an individual item impacts the customer’s likelihood to purchase additional items as part of the same transaction.
“A stockout on one item increases the probability of customers cancelling other items in that order, representing 33% of the total short-run opportunity cost.”
Christine decides to cancel her entire order and is back on the hunt for cleats to buy online.
Long-Term: 1 Customer Lost Today, Profitability Tomorrow
Not only is Christine cancelling the purchase of her entire basket due to the stockout on just one item, she is less likely to do anything with WickedAwesomeSoftballGear.com going forward.
Now that one stockout has cost the retailer one basket’s worth of revenue. And even if Christine returns to the site in the future, her basket size will likely be smaller.
Consider the inverse possibility – according to Bain & Co, “a 5% increase in customer retention can increase a company’s profitability by 75%”.
So Christine’s cancellation of the order hurts today and her unlikely future return hurts tomorrow. For the retailer, the time spent processing the cancelled order, coupled with the upfront marketing investments to bring Christine to the site in the first place, all add up to seller expenses that drove no recognized revenue.
It is not just a lost sale – it is a hit to the site’s profitability.
Big Picture: Your Ability to Work with Future Christines
If Christine had found WickedAwesomeSoftballGear.com’s offerings through a marketplace like ChannelAdvisor or Amazon, that softball cleat order cancellation can now create selling problems for the site’s other customers and transactions. Refunding orders is not enough – cancellations can negatively impact a site’s seller performance rating.
“You get ‘dinged’ as a vendor when you cancel orders. If you cancel several per month, Amazon will end your account. Once your account is banned, no one with your SS# or IP address can open another.” – Amazon Top Reviewers Forum
Maintaining accurate inventory counts on your online storefront and marketplaces is paramount to avoid cancellations (or worse). Stockouts are a problem for retailers of all sizes – small and midsize retailers may think of it as unique to them, but larger enterprise and brick-and-mortar retailers face the same challenges. For retailers with multiple fulfillment vendors (dropshippers, 3PLs, etc.), maintaining inventory accuracy becomes a more challenging task when handled manually. Automating your inventory management – with an Order Lifecycle Management platform like HubLogix or another technology – can significantly reduce your time spent managing your site’s inventory levels and take your error rates to nearly zero.
So you can get back to selling more softball gear to more Christines.