November 07, 2021

Ghost Demand

A vendor recently told folks that because of the sheer volume of products that are not available this Fall, there will be "ghost demand" (click here). The theory suggests that a customer wanted to order a widget, the widget wasn't available and therefore not even featured online, and as a consequence the sales generated by customers is undercounted by the fact that you can't record that the customer bought something that wasn't available.

In the old days (i.e. pre-2002), "demand" was always recorded (because e-commerce wasn't a large share of total volume). The customer called the call center, asked for a Widget, and when the Widget wasn't available, the customer was disappointed but the "ghost demand" was recorded nonetheless.

When planning the following year (2003), the marketing analyst predicted how much a customer would spend based on "demand" and not "sales".

So when you read about "ghost demand", you are reading about a concept that was highly popular from 1980 - 2002. It's logical and it makes sense when predicting what might happen next year. If all of your products are sitting on a ship off of Long Beach, well, you can't sell them.

The concept makes sense if you view the world in a 2002 framework.

It's 2021, of course.

Customers are wily. They can browse your entire website, and if you have Bidgets as a substitute for Widgets, the customer will buy a Bidget. You capture the sale regardless, and there isn't "ghost demand". Ghost demand, therefore, correlates with how well you perform as a marketer/merchant. If you are a lousy marketer/merchant, you might need to worry about "ghost demand".

My comp segment analytics suggest that "substitutions" are rampant in 2021.

In other words, if you are good at what you do as a "brand", you don't have a "ghost demand" problem, or it is a tiny problem.

If you aren't good at what you do, then pay heed to what the author of the article is saying.

You know if you are a good marketer/merchant, so you know what to do in this instance. 

P.S.: Adding a random percentage to your "ghost demand" rate needs to be rooted in analytical savvy. You have to thoroughly know the "substitution rate" you have in order to make an already flawed and inaccurate guess. In other words, if you had an item that generated $1,000,000 in sales in 2019 or 2020 and it was not available in 2021 but you have substitute items that were expected to generate $500,000 and instead generated $1,300,000, then you captured $800,000 of the $1,000,000 you lost, and your "ghost demand" rate is low. Without knowing the "substitution rate" for key items, how could you ever know your "ghost demand" rate? Do the work, folks, don't just throw a dart at something that protects the paper industry, printing industry, and associated vendor support teams. If you do the work and your analysis tells you that you have a 25% "ghost demand" rate, so be it, apply it and move on. But do the work. Don't be lazy.

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