On The Shelf Availability: Automatic Identification Makes It Far More Probable

Introduction

We’ve all been there. It’s 4 a.m. and you’re in the supermarket looking for size 2 diapers. It’s a hot summer day, and you’re looking for a twelve-pack of your favorite bottled lemonade. It’s 5 p.m. before a big date, and you’re looking for that “killer tie.” It’s hurricane season and a storm is fast approaching, and you’re looking for flashlights and plywood. You go to the aisle and specific location where the item you desire is supposed to be, and you find…an empty shelf.

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Whether you’re looking for that special gift for your anniversary or the part you need for your computer or your car, retail is a zero-sum game – either the store has the item that you’re looking for or it doesn’t. And if that store doesn’t have the right item in the right store on the right shelf at the right time, then you the customer have caught the retailer in its worst moment – being “out-of-stock.”

Jan Carlzon, the legendary former head of Scandinavian Airlines (SAS), introduced the “moment of truth” concept to the lexicon of business. Carlzon believed that “anytime a customer comes into contact with any aspect of a business, however remote, is an opportunity to form an impression.” He characterized customer interactions as being “moments of truth” for all service businesses, critical to generating customer satisfaction and repeat business.

In the retail environment, being caught without the right item on the right shelf at the exact moment that the customer is looking to buy it is the quintessential “moment of truth.” It does not matter if the item is on the store’s receiving dock or in its storage area. If the customer is staring at a blank space on the shelf where the item is supposed to be, then the retailer is “out-of-stock.” This has been described as one of the costliest problems in retail today, and according to industry analysts, the average mass merchandiser is out-of-stock on as much of 8% of its items at any given time.

Being out-of-stock is costly in both immediate, direct costs (lost sales) and in a number of longer-term, often immeasurable ways. Yes, being out-of-stock costs the retailer that particular purchase, unless a ready alternative is located nearby (i.e. another brand of toilet paper). More importantly, however, it creates a problem for the retailer in terms of promoting both immediate customer satisfaction and long-term customer retention. The fact that out-of-stocks are also highly problematic for the product manufacturer is often overlooked. Indeed, finding an empty shelf gives customers a reason to try competitive brands, perhaps losing a significant portion of them forever. Also, if a manufacturer’s product is out-of-stock too often, customers may permanently remove that product – and even a whole brand – from their mental map of alternatives.