As fall approaches in some parts of the world, brands have started to bring out pumpkin-themed Halloween products and services to make profitable strides well before the Halloween season. Right before Halloween ends, Black Friday deals will begin to pop up in emails and social media. And don’t forget the Christmas decorations appearing in stores as early as October. Love it or hate it, this is advance selling at work.
Advance selling is beneficial for customers in that it allows them to secure the products or services they want ahead of time, and they may even be able to take advantage of exclusive offers or incentives. There are some potential risks involved, though, such as uncertainty around delivery dates or the quality of the final product.
In general, advance selling is advantageous for businesses to manage inventory, boost sales, and create a positive customer experience by leveraging the excitement and anticipation surrounding upcoming releases. It generates revenue, allows companies to gauge demand for upcoming offerings, and it is an especially effective strategy in industries like technology, entertainment, and fashion, where creating buzz and excitement is crucial. However, retailers and manufacturers must be wary of potential pitfalls with advance selling—especially in terms of product storage—in order to optimize their bottom lines.
Advance Selling Advice for Manufacturers and Retailers
A recent study by Krista J. Li and Xi Li in Journal of Marketing Research delves into the strategy of advance selling and explains when, why, and how it can be a profitable business strategy for manufacturers and retailers. The research shows that:
- Retailers should not advance sell seasonal products (e.g., summer or winter apparels or equipment) when they can stockpile products for spot selling. Retailers should advance sell products that have low holding costs (e.g. nonperishable products) when they cannot stockpile products, either because they lack storage space or have contractual agreements such as VMIs or scan-backs with the manufacturer.
- When a retailer (e.g., Target) cannot stockpile products, manufacturers of seasonal products (e.g., Zooby Industrial, supplier of holiday decorations) should advance sell as long as the product’s holding cost is low (e.g., nonperishable decorations that are easier to be stockpiled). If the retailer can stockpile products, the manufacturer should only advance sell when the channel contract is a dynamic contract and the holding cost is even lower.
- The manufacturer should restrict retailer stockpiling when the product’s holding cost is low. For example, Zooby Industrial should offer scan-back contracts to Target for selling nonperishable holiday items, so that Target has no incentives to stockpile these items.
- The manufacturer should commit to its future price during the season when it advance sells if and only if the product’s holding cost is sufficiently low.
We recently had a short interaction with the authors, who kindly offered insights into their findings on advance selling, how it can build a win–win situation for manufacturers, retailers, and consumers, and how future research can go further into this topic:
Q: What are you proud of when looking back on the research project?
A: Although advance selling has been a topic of study for decades, our research offers a fresh perspective on this issue and expands our understanding of the practice. By exploring the nuances of channel relationships and the impact of stockpiling costs, we have uncovered new insights into the value of advance selling for businesses and consumers alike.
Q: What factors should practitioners consider when implementing advance selling strategies, such as the products’ holding cost, retailers’ stockpiling ability, and manufacturers’ commitment to spot wholesale price?
A: We are of the belief that all the factors we have explored hold significance. However, among these factors, retailers’ stockpiling ability may have the greatest impact. Our findings suggest that the outcomes can vary significantly depending on whether or not the retailer has the capability to stockpile products.
Q: What strategies and operational adjustments should be employed to balance stockpiling costs and the benefits of holding inventory during the advance selling period?
A: To minimize the cost of stockpiling, companies can implement a range of measures, such as developing products that are more conducive to stockpiling. By designing products with features that make them easier to store, businesses can mitigate the expenses associated with inventory holding and management.
By designing products with features that make them easier to store, businesses can mitigate the expenses associated with inventory holding and management.
Q: How can your findings help large digital goods brands, such as Sony or Microsoft, and impact their relationships with resellers?
A: Our research findings are also applicable to digital goods that have zero stockpiling costs. In such cases, companies can still benefit by pre-selling products, such as games, to resellers. This strategy can enhance a firm’s profitability by ensuring a steady stream of revenue in advance of the product’s release.
Q: What are the most surprising findings of this research?
A: Our research indicates that advance selling can enhance channel efficiency, resulting in a “win-win-win” outcome for all parties involved: the manufacturer, the retailer, and the consumers. By streamlining the distribution process, advance selling can benefit everyone in the supply chain and lead to improved outcomes.
Q: Would you suggest experiments as a research design to further test your propositions in the real world? If so, do you have any suggestions that could serve as a guide for future research?
A: Of course. Our research has produced several testable implications, and it would be highly beneficial to have them validated through empirical or experimental testing. As our study delves into the intricacies of channel relationships, it may be more effective to engage professionals with relevant expertise to conduct the tests, as opposed to relying on the general public who may lack the necessary knowledge to make informed decisions. This approach would help ensure the accuracy and validity of the results obtained.
Read the Full Study for Complete Details
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