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    Out-of-Stocks Tied to Customer Service Study

    'Customer perceived in-stock' is dependent on employee knowledge, not only actual merchandise stock.

    PHILADELPHIA -- "Did you find everything?" may be the most common question asked in retail. The answer to that all-important question is very telling for retailers who desire increased sales without high investment, according to the Wharton School at the University of Pennsylvania, which just released the results of a study called "Retail Store Execution: An Empirical Study."

    The study, conducted by Wharton operations and information management professors Marshall L. Fisher and Serguei Netessine, and Wharton doctoral student Jayanth Krishnan, used proprietary data collected over 17 months at a large retailer with more than 500 stores.

    The study found that sales and customer satisfaction were not only driven by the customer's ability to find products on the shelf, but also by "customer perceived in-stock" -- a metric developed by the study to quantify the number of customers who answer positively to the "Did you find everything?" question -- which is not only actual in-stock, but the customer's idea of employee knowledge about the store and the products they would like to purchase.

    Also, the study found that lower customer satisfaction with their shopping experience is a result of too few employees and the lack of accessible, knowledgeable employees.

    Analyzing the unnamed large retailer, the researchers suggested that it consider a "modest reallocation of the payroll budget among stores,'' might result in a 2 to 3 percent increase in sales at no additional cost.

    "We were amazed to find how this retailer could increase sales by changing its staffing resources through adding more employees or simply reallocating existing staff," Netessine said. "In some stores, the sales leap would be $28 to $1 in employee costs, and that was really striking. We were blown away. It never occurred to most of the retailers that by moving employees around the stores, you could increase sales."

    The study also addressed out-of-stock and supply chain issues.

    ''You forecast demand and plan just-in-time deliveries to the store, but our paper points out that this is really not enough," Netessine said. "Execution within the store is the key element. That's how the product gets to the customer. People will hopefully start thinking about execution issues and how to address them, and spend more time thinking about in-store processes. This is the weak link in the supply chain."

    In a supply chain analysis, consumers' perception of availability is when there is inventory availability; if you have it in the store, they will think it is in the store,'' he continued. ''Employee knowledge about product brand and prices was the biggest driver of consumer perception of availability. … When we asked, 'Was there anything on your trip to the store that you couldn't find?' and then tried to get to the bottom of it, the biggest driver was employee knowledge and assistance. The actual presence of the product is actually the second driver."

    Other factors also influence the purchase-making decisions of customers. Four key execution elements that can affect sales include:

    -- product the customer wants to buy isn't in the store because of an out-of- stock;
    -- the customer needs help and can't find a store associate;
    -- the customer finds an associate but the associate is not helpful; and
    -- the checkout line is too long.

    "We argue that store associates are instrumental in fulfilling both factory and service functions within the store,'' the study stated. "The reason is that store associates perform a variety of factory tasks, which include moving inventory from back room to the shelf, conducting inventory audits, guarding against theft, updating price stickers, checking adherence to store layout guidelines, etc. Moreover, store associates perform sales office tasks which involve all facets of customer-employee contact, such as explaining the location of the products within the store, helping customers to make brand decisions and manage their shopping baskets, and so forth."

    However, the increase in satisfaction can vary with current employee levels. "If the current staffing level is low, the gain from adding people is very large; if you are doing a very poor job, you get a huge gain," Fisher said. "But like everything in life, there is a diminishing return in sales versus level of payroll. It tapers off."  

    The report concludes with one significant finding: "If customers find what they came for and make a purchase successfully, they leave the store satisfied and are likely to return. Otherwise, they will abandon this retailer for a competitor with some probability. Thus, in this model, sales during the current visit increase satisfaction, which in turn leads to future visits and sales."

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