The tricky relationship between inventory levels and sales performance

06Jan10

Let’s say you sell a product that consumers usually buy in batches of two. Your store starts with five in stock. Someone comes in and buys two units, leaving you with three. Then someone else shows up and takes two more. Now you’re down to one unit left, and it sits there untouched for months.

Did customers suddenly become less interested in the product? Or, did they stop buying because one unit is useless by itself? In my hypothetical scenario, it’s obvious that the quantity — and not the product itself — is the issue. But what if you didn’t start with that key tidbit of information? Chances are you’d conclude that the product had become irrelevant, and never order more.

Clearly, this is a very simplified anecdote. But I bet this type of situation happens all the time. After all, how attractive is one little bag of “Coffee A” going to be when shoppers like to stock up on three or four at a time, and “Coffee B” is piled high on the next shelf? The whole point here is that the relationship between inventory and sales isn’t simply black and white. Just because something is in stock and not selling doesn’t mean that consumers aren’t interested in the product. Instead, they might just be looking for more of that item than you’re carrying at the moment — meaning that replenishing your inventory would be the best way to jump start your sales.



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