What are the Benefits of Backordering?
Retailing business is all about dealing with demand and supply.
But sometimes it happens so that, your demand rate increase the supply rate for a particular product. It could happen for various reasons,
- The marketing strategy you used for the product is working great, so you may need to level up your supply game.
- The season for the particular product has arrived and you need to stock that thing up fast.
- There is a significant change in the consumer behavior regarding that product.
- The product is trending and useful in the future.
All these factors collectively increase the sales for a particular product.
The real problem is not the risen up sales, but the ability to cope up with the demand.
Sometimes the product is not readily available for the retailer to ship to consumers. But that doesn’t mean that you shouldn’t accept orders and advertise that product.
That’s where the concept of back ordering kicks in.
What is Back ordering
Backordering means letting your consumers shop for products, record their orders, even when you’re lacking the product in supplies.
Backordering doesn’t let your sales to drop irrespective whether you got the product in sufficient numbers.
This way you can do business, and when the stock fills up, you can start clearing pending orders.
Backordering looks like it’s a bad thing for business, but it depends on the product, whether it is bad or good.
Further, it depends on the supply chain, how fast you can fill the gap, product value, and consumer base.
It can also bring down a retailer’s reputation if the factors mentioned are not considered while back ordering.
Backordering has a lot of benefits, let’s discuss them in detail to know about how it really works.
Benefits of BackOrdering:
1. It Doesn’t Hurt the Customer Base
One of the biggest advantages of back ordering is that it doesn’t hurt the consumer base, directly means, sales are going to do well, even when the stock is not there.
It is certain that you don’t want to hurt consumers by saying that you’re out of product, and don’t sell it anymore. That likely to increase the competitor’s sale, if the product is not exclusive.
That could result in shifting of consumer base you have acquired after building trust to some other retailer.
If you let backorder on your products, not having stock is going to have a negligible effect on the sales.
It won’t restrict your consumer anymore from not ordering from you, which is a great thing.
In fact, letting backorder can get you consumers who are not getting the product from elsewhere. So you always have a benefit over the retailer who doesn’t backorder.
2. It increases the product value
Curiosity is a great thing to have in retailing business.
Some companies launch the product and let’s consumer order it before even they are ready to ship it.
This creates a significant value to the consumer that they’re lucky if they get the product. It turns out to be a great marketing strategy because people would start to think that the product is too good for them, or it is a great product, hence limited stocks, or latency in delivering.
But the catch is that there should be a right amount of wait for consumers, the excessive wait can result in permanent disinterest in buying the product.
One of the great examples for understanding here is the apple supplying chain. With the release of a new iPhone, consumers wait, they stand in queues and get their iPhones with some delay.
But only increasing the value of the product, it’s worth in a consumer’s eye, and the best part is, Apple delivers the product to the one who desires efficiently, thanks to their good network of suppliers and manufacturing units.
3. Helps in Understanding Customer Patterns
Backordering tells us a lot about the trend, product sales, and consumer behavior as to how they’re perceiving the product.
When you let’s your eCommerce store to have a backorder, customers are going to get their order placed.
So you can look into the statistics and analyze how much stock do you need in future.
You can also predict the stock you need to hold and how frequent you should have the supplies.
The statistics also going to help which product will have maximum sales and lead other products.
You can have multiple products that have backordering enabled, but different products have different stock needs, so it helps in analyzing that.
4. It helps in Cutting Costs
As a beginner retailer, you should avoid overstocking the products, because they’re not direct cash.
In fact, focus on backordering, so that you have enough orders to start buying from the supplier.
In that way, you don’t have to pay for inventory or any storage space, because whatever is getting in, consumers have already bought it, so not storing problems, directly cuts costs.
When an eCommerce store is recently created, the order volumes are not high enough to buy from the supplier.
Instead wait for them to increase in number, considerable enough to make a deal with a supplier, and get a discount on them. That way, it is a win-win situation for the supplier, you and consumer.
Backordering can significantly decrease the cover costs, but you have to apply the strategy in the right way because, in the end, it is all about how you execute the whole thing.
Conclusion: Customer Service is the key
Backordering surely is a good way in dealing with high volumes of order and having insufficient stock.
But amidst of all, don’t forget that only an excellent consumer service can pull off backordering successfully.
If you have a supply chain, that can surely reach the consumers, then the wait is going to be worth it.
Consumers understand that back ordering takes more time than normal ordering, but it surely shouldn’t take time that can disinterest them in the product or lose hope.
You should constantly email them about the status of their backorder.
Catch up with your backorder before they start biting you back. A great customer service is a key, indeed.