Act fast or this supply-chain crisis will really hurt

Media Leaders

Publicis Commerce’s head of online marketplaces makes the case for how businesses should adapt their media approach during a supply-chain crisis.

Our current global crisis presents different challenges to the last. Where 2007’s global financial crisis brought the money supply to its knees, reducing global demand for goods and services, the Covid-19 pandemic created a temporary vacuum in supply as industries were forced to shut down.

Many businesses and individuals had to pivot quickly in order to survive changes in the consumer landscape, hemmed in by government restrictions and economic uncertainty.

Having weathered the storm, we face a new set of challenges, including a resurgence in demand for certain products that have outstripped fragile supply chains struggling to bounce back.

Tim Uy, of Moody’s Analytics, sums this up in a recent report: “as the global economic recovery continues to gather steam, what is increasingly apparent is how it will be stymied by supply-chain disruptions that are now showing up at every corner.”

He continues: “supply will likely play catch up for some time, particularly as there are bottlenecks in every link of the supply chain—labour certainly, but also containers, shipping, ports, trucks, railroads, air and warehouses.”

Many experts predict supply chain issues will continue into 2023.

From a UK perspective, the Brexit influenced European repatriation of skilled workers, en masse, compounds the problem. Most notably in logistics, where a well-documented shortfall of HGV drivers is delaying goods getting to their point of sale. Including fuel, which brought chaos to the nation’s roads and petrol forecourts in early October.

We will no doubt see similar shortages and frustrated consumers over the Christmas period, as shoppers scour store aisles and ecommerce sites in search of that fully-stocked shelf or precious ‘in-stock’ message across the seasons most wanted devices, toys, gadgets and gifts.

The challenge facing brands

The problem for brands who are more reliant on the seasonal uplift from Q4 will be how to maximise revenue with supply stretched so thin. Forecasting inventory for a seasonal peak is a tall order at the best of times.

As a former boss of mine once teased “your forecast will always be wrong” – the most important aspect of the exercise was to ensure volumes laddered into a sound commercial plan and have contingencies in case the “shit hits the fan”.

Go too bullish and you have an overage of stock; some luxury brands destroy excess inventory, other verticals like toys will move product by discounting heavily. Not great for the brand or the P&L.

Forecast too conservative and you leave sales on the table, potentially losing ground to competitors and frustrating your consumer base. The margins are fine and the stakes are high.

The supply-chain crisis is akin to the latter, the key difference being its macro driven and outside of the brand’s control. The implications however, are the same.

Brands must figure how to maximise sales with limited inventory, maintain market share and not alienate consumers. In a normal year, most brands will set ambitious forecasts on their key products and implement media activations to boost awareness and drive sales of these products, with commercial, creative and media plans usually locked way in advance.

How can brands adapt?

Shift focus from constrained products

It feels obvious, but don’t persist with product hero creative and messaging if that product is going to have availability issues. Common sense, but it’s not unusual for brands to slip-up when sales and marketing departments fail to communicate effectively or have misaligned objectives.

A hypothetical example would be Sony’s PlayStation 5 console. The global shortage of microprocessor chips means supply will fall short of demand. Sustained advertising for this product exacerbates consumer frustration when they’re unable to buy and will only benefit resellers making a fast buck through arbitrage.

While we know product hero communications deliver buzz around key launches, in the current climate a shift to more brand focused messaging or multiple products serves better.

Leverage scarcity

Suppliers are regularly under pressure from retailers to financially support price promotions that drive rate of sale. This effects brand equity as consumers become accustomed to only buying products while “on promotion,” cutting into a brand’s bottom line and consumer value perception. Profitability should be prioritised when supply is constrained.

Brands should refrain from funding promotions designed to give retailers a temporary peak and assume products will sell through, at full price, where demand outstrips supply.

Supporting promotional activity can become a significant cost, so cutting this as operational costs soar (i.e. inflated logistical costs currently) is prudent financially. Consumers should expect a less generous Black Friday event this year as promotions are squeezed. Adobe, which tracks retail websites, projects that holiday discounts this year will range from 5% to 25%, down from the 10% to 30% off that consumers are used to.

Link lower funnel activations to inventory

Lower funnel ecommerce advertising, such as Amazon Sponsored Ads, needs to drive broader sales across a brand’s range, as opposed to being focused on key product launches and best sellers with availability issues that need less promotion. Consumers unable to buy these products when out of stock, should be directed to alternative (in-stock) items to prevent migration to competitor brands. Marketing and agency teams should work more closely with trade sales teams and leverage retail data to ensure a more even distribution of sales in line with SKU forecasts and purchase orders.

Provide clearer product curation and information

If a consumer is unable to buy their first or second choice, they must be given a compelling reason to buy an available alternative product not previously considered. Leveraging a shop-in-shop, like an Amazon Store, is always a good tactic for generating more pages views and sales.

Consumers enjoy having a broad selection of products at their fingertips and tend to compare a handful of products before deciding to buy. Brands should use their real estate to give ‘in-stock’ products more prominence.

This means placing available products at the top of store pages and in the feature billboards. To limit friction, out-of-stock items should be shifted down the page or removed to improve the customer experience.

Comparison product charts do an excellent job highlighting product features, side-by-side, to help consumers consider a range. They should be utilised more in markets where stock is limited and consumers need to consider alternative purchases.

This Christmas will be different

It’s clear, given the challenges, that marketers will face a very different Christmas period this year; more messages to tweak, creatives to re-cut and new data sets to consider. Commerce teams more used to fighting over price, will be fighting over supply, no doubt courting inventory planners and operations teams with added vigour now that inventory is king. The effective digital translation of product availability and range intelligence to win the consumer will be key this Christmas.

Digitally mature brands who are keyed into the right data and able to mobilise fast across functions will be the ultimate winners.

Jason Wescott is head of online marketplaces at Publicis Commerce