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For many direct merchants, recording phantom demand can be as elusive as capturing an actual ghost. Advancements in contact center and Website technology have made it somewhat easier to get a handle on this lost demand. But inventory management experts say that far too many multichannel marketers still ignore this mysterious metric.
Phantom demand, sometimes referred to as shadow or lost demand, is generally described as demand that cannot be filled and is not recorded. A cataloger typically captures demand data on the number of customers who actually placed an order for the item but not necessarily the number of shoppers who wanted the item but didn't order it because it was out of stock.
"It is fair to say a true backorder is legitimate demand, especially if it is fulfilled," says Ken Lane, founder of Litchfield, CT-based direct marketing consultancy Hathaway & Lane Direct. "Backorders that are not filled or items that sell out far before the selling season ends can create phantom demand."
Say you're an apparel merchant, and you have a purple, cable-knit V-neck sweater that's been a runaway best-seller this fall - maybe because purple was the hot color for the season or perhaps because V-neck tops were all the rage in the fashion magazines. Even if you sell out of the item, customers will continue to call to order it. If a customer is willing to wait for a product that's on backorder, you have a record of the demand. But what about all the customers who call to order the item but don't place orders or cancel their orders once they know it's on backorder? All the units you could have sold if you'd had the merchandise in stock amounts to phantom demand.
Phantom demand is a valuable inventory planning metric, says George Mollo, president of Nanuet, NY-based operations and merchandising consultancy GJM Associates. Because it tells a retailer how much of an item could have been sold if it had been in stock for an entire season, merchants can use that figure to better determine how much of that item they should put in inventory the following season.
In short, this information is critical for improving forecasting accuracy, fill rates, and customer satisfaction, Mollo says. If the...