Retailers are constantly searching for innovative ways to sell their inventory quickly to avoid end-of-season markdowns and maximize their ROI. Pre-order and backorder models are great strategies to sell future inventory or inventory still in transit. They work especially well for brands releasing high-demand products that consumers are willing to wait for.
However, setting correct customer delivery expectations can be very challenging when promising future inventory. Many retailers deploy pre-order and backorder strategies without a solid plan in place to manage expectations, leaving eCommerce shoppers confused and unsure when to expect their product.
In this blog, we will discuss pre-orders & backorders in detail, including the key differences between them and how retailers can efficiently deploy these models to provide a better experience for their customers.
Pre-orders are orders placed for products that have not yet been released in the market. Naturally, these products are not in stock. These orders are referred to as “pre-orders” because they are advance orders for items still in planning or production.
When are pre-orders taken?
Many retail brands will simply list unreleased products as “coming soon” on their eCommerce site, especially when their release timeframe is undefined. However, pre-order models are used when products are expected to be available within a reasonable timeframe and their production is already planned.
Different retailers may accept pre-orders for different reasons. Small retailers may need the revenue for their manufacturing run, while established retailers might be looking to test, validate, and capture demand levels for an upcoming release.
When to set a maximum limit for pre-orders?
Depending on the product category and a brand's reason for taking Pre-Orders, merchandisers can decide if they want to take unlimited pre-orders for an item or use “on order” inventory to limit pre-orders and then mark it as “out of stock.”
If merchandisers are using this model to generate sales in advance and do not plan to produce the product in the future, they should choose to cap pre-orders only to cover the quantity that is planned to be produced.
Alternatively, if brands are using pre-orders to sense demand for a product release, they may choose not to set a maximum limit.
Full payment or partial payment?
For pre-orders, the payment strategy varies from brand to brand. Some retailers decide to require the full payment upfront, while others opt to collect a portion upfront and charge the remaining amount when the product is delivered. This decision depends on brands’ unique products and business cycle.
Backorders are orders taken for products that have been released but are temporarily out of stock. These orders are referred to as “backorders” because they were previously in stock and will be available again soon, but are currently out of stock due to high demand, inaccurate sales forecasting, or operational discrepancies.
When are backorders taken?
In general, retailers will list unavailable products as “out of stock” or “notify me when available” on their eCommerce site when they are unsure about the production time frame. However, it is a mistake to mark all out-of-stock products as backorder products, because customers will still expect a reasonable timeframe for delivery, and will become aggravated if they have to wait for months on end.
Generally, retailers decide to take backorders for “standard” products that are not seasonal, because they know that these products are already under production and they will receive inventory soon. For example, a plain white shirt could be considered a standard product for a fashion brand, as they will always sell this item, so they will always produce it.
In some cases, retailers may also take backorders for popular seasonal products. Such products are generally in high demand within a given timeframe and customers are willing to wait. If the full inventory of the seasonal product is sold out and it’s the end of the season, then merchandisers do not prefer to take backorders as they are not planning to produce additional inventory.
When to set a maximum limit for backorders?
Like pre-orders, the decision to set a maximum limit for backorders depends on the industry and product category. Merchandisers can decide to accept unlimited backorders for a product or cap backorders and mark items as “out of stock.”
Retailers should set a maximum limit on the number of backorders they accept based on the quantity of planned inventory and how much has already been ordered. This helps retailers ensure that they do not overpromise and accept an order they cannot fulfill.
For non-seasonal products in high demand, merchants generally opt to take continuous backorders because they know they will fulfill them.
Full payment or partial payment?
Generally, the full payment for a backorder is taken upfront.
Comparing Pre-Orders & Backorders
Table.1- Purchase Order illustration
How to Maximize Pre-Order & Backorder Effectiveness
Many retailers make the mistake of showing the regular “Add to Cart” button on the product detail page (PDP) for products that allow for pre-orders and backorders. This creates a confusing experience for customers because they make the decision to add an item to their cart assuming that it’s a standard order following a standard delivery timeline. Communicating pre-orders and backorders later in the shopping journey results in higher cancellation rates.
To solve this problem and prioritize a seamless checkout process, merchants should replace the “Add to Cart” button with “Pre-order” and “Backorder” buttons respectively, and display the expected delivery date directly on the PDP. This sets correct customer expectations and reduces cancellations.
Managing pre-order & backorder models successfully is all about setting customer expectations correctly and meeting them. To achieve this, retailers need a Pre-Order Management System that:
- Automatically tags products as pre-orders & backorders
- Captures, tags, and manage a queue of pre-orders & backorders
- Gets information on inventory receipts and releases limited inventory to the queue of pre-orders and backorders so that they can be fulfilled on time
- Communicates changes in the expected delivery date to customers
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HotWax Commerce’s Order Management System enables retailers to effectively capture and manage backorders and pre-orders so customers receive their orders by their expected delivery date. Our software also communicates changes in expected delivery dates directly to customers to avoid any surprises that will negatively impact your customers. If you are interested in learning more about how our omnichannel solutions can take your brand to the next level, contact our omnichannel experts today.