Being seen as ‘wasteful’ can have a reputational cost. But brands who manage overstock issues effectively can win consumer support.
How a company deals with excess inventory can make or break a brand, according to new research by Monash Business School.
The study, conducted in collaboration with UNSW Business School, has exposed the enormous impact overstock reduction methods can have on consumers’ brand perceptions and purchase intentions.
“Many companies have to deal with overstock, and there are several different methods they can choose from,” says Department of Marketing Professor Harmen Oppewal, who co-authored the peer-reviewed research with Dr Oanh Dinh Yen Nguyen (now at Vietnam’s Can Tho University), Prof Tania Bucic and A/Prof Liem Viet Ngo, both from UNSW Business School.
“They may incinerate overstock or send it to landfill, or they might recycle, donate or discount – we looked at how these disposal choices affect consumer perceptions of the associated brands.”
The findings demonstrate that while destroying unwanted inventory may seem like the ‘cheapest’ short-term option, it can be a costly choice for a company’s reputation.
So, how can businesses turn overstock management into a competitive advantage?
‘Brands perceived as ‘wasteful’ pay a high price’
Researchers conducted three experiments using more than 3600 participants to test brand perception in relation to overstock reduction methods.
The first study used hypothetical brands across clothing, accessories and electronics, surveying some 400 participants about their thoughts on destructive and non-destructive overstock management methods.
The second study included about 1300 participants and focused on luxury label Burberry, adding recycling and discounting methods into the mix, as well as the case where the brand does not have any overstock.
In the third study, another 1300 participants rated non-luxury clothing brand H&M in relation to these same overstock management methods, as well as when the brand is sold out.
The experiments gauged participants’ overall brand evaluations, their reactions to brand exclusivity, popularity, wastefulness, and whether or not they would buy from that brand in the future.
Less destructive methods such as recycling, donating and discounting got the consumer tick, leading to a boost in brand evaluation.
“Overall, we found that brands need to be very careful about how they dispose of overstock,” Prof Oppewal said.
“Our findings suggest brands perceived as ‘wasteful’ pay a high price in terms of negative sentiment.”
Recycling: a cautionary tale
While recycling emerged as one of the most well-regarded methods for managing overstock, it comes with a caveat.
“Recycling is a very good option, the response was overwhelmingly positive – surprisingly so,” Prof Oppewal said.
But companies choosing this method of overstock management need to follow up, or it could backfire badly.
“A lot of recycling can be difficult to do and it may still end up in landfill,” he said.
“When that happens, our findings suggest that people will react very negatively, and the damage to the brand can be extreme.”
The Goldilocks approach to exclusivity
The research also highlighted the unique challenges faced by luxury brands trying to manage excess inventory.
“Our findings show discounting and destroying stock are very dangerous for brands needing to protect an image of exclusivity,” Prof Oppewal said.
The answer: striking a balance in supply to avoid products selling out too quickly or becoming overstocked.
“People respond positively to not having overstock, and this is a particularly good approach for a luxury brand, because it can help to build an image of exclusivity,” he said.
Transparency as a business opportunity
While most companies prefer to keep their overstock management methods a secret, communicating these to the customer can be beneficial.
“Being transparent and communicating to customers about how you are managing overstock can help to build trust and brand awareness,” Prof Oppewal said.
However, there are risks.
“It can be a double-edged sword,” he said.
“For example, if customers do not perceive it as a genuine attempt, if they feel it is not authentic, that can be damaging.”
Counting the costs
Prof Oppewal said while the research suggests consumers are aligning their spending to their environmental goals, it did not include what the long-term effects will be.
“We looked at the immediate reaction of consumers to overstock management methods, but we don’t know what the long-term impacts are after a week, a month, or longer,” he said.
“Will it change how that person consumes, or will they forget about it – we don’t know.”
Only time – and their next research project – will tell. “These are all things we hope to explore next,” he said.