Creating a pre-order process: pros, cons, and tips
Managing inventory for retail is a complex task. Forecasting demand, adjusting to match changing market conditions, and fulfilling orders efficiently presents plenty of business challenges and costs. This can make the pre-order process seem prohibitively complex and risky — on the other hand, plenty of businesses reap the benefits of pre-order strategies.
Employed correctly, pre-orders can balance out cash-flow fluctuations and improve demand forecasting. However, pre-orders can place new demands on your inventory management system, and require careful planning and coordination. So, how can you determine if pre-orders are right for your business? First, you need a deeper understanding of just how they work and what function they serve.
How do pre-orders work?
What is pre-ordering, exactly? Pre-orders — also known as a pre-sale — are limited-time offerings from an organization prior to the product becoming officially available to the public. By and large, pre-orders of a specific product give the consumer a sort of “backstage pass” before the show to meet the artist while others are still waiting in line for their tickets. Pre-sales are used for a variety of reasons, from generating cash flow during a slow period, to validating a product that is still in the production phase.
Pre-orders are used in all types of businesses, not just early video game releases like many think. There is also a misconception that pre-orders are the same as a Kickstarter. While they both may have the same intent — raising funds — a Kickstarter is an all-or-nothing funding program to begin the creation of a product while a pre-order is an offering for a product that is already in production (or sometimes finished but unreleased).
How to set up a pre-order
Since setting up a pre-order can seem difficult, the process should be broken into three digestible parts: before, during, and after.
Before the pre-order
The beginning phase of the pre-order is about bringing awareness to the product or service that is being advertised. The beginning of a pre-order includes the following aspects:
- Creating an exclusive (and limited) offer that differs from the traditional retail process
- Having a plan that can be executed immediately in the case that the pre-order product never ends up being produced
- Identifying the incentive for buying the pre-order (e.g., a discount, early access, etc.)
- Setting clear expectations for the time span of the pre order (e.g., how long in advance it is offered, when is the product release day or when can they expect to receive the pre ordered product, etc.)
- Creating a marketing plan or partner with blogs, social media influencers, media outlets, or brand ambassadors in order to promote the pre-order
During the pre-order
The middle phase of a pre-order focuses on driving customer traffic. It includes:
- Gathering emails or phone numbers to create a list of individuals who have expressed interest
- Having a person (or a group of people) who is available to respond to leads, as well as any additional information that a consumer may ask for in a timely manner
- Publishing on the organization’s social media and considering utilizing paid traffic
- Creating a good line of communication with the customers — such as a mass email list — in case of slowed production. Make sure to communicate any issues that arise immediately (e.g., a delay in production)
After the pre-order
The final stage of a pre-order is executed after the product is received. This stage is often concerned with customer retention and includes aspects like:
- Creating blog posts to address commonly asked questions or any recurring misconceptions
- Being reachable for any issues that may arise (e.g., damaged goods, product recalls, etc.)
- Checking in with customers to see ways in which you can improve future pre-orders (e.g., survey, review forum, etc.)
Why use pre-orders?
The intent behind a pre-order varies from one organization to another. Typically, the intent behind any product pre-order is to create a paid value exchange, but there are other reasons for pre-orders:
- Alleviation during holiday season peaks
- Compensation during slow periods
- Less stress over unsold stock
- Product validation
- Promoting a product
- Rewarding customer loyalty
While pre-orders are a viable option with many benefits, they are not the end-all solution for inventory management. For example, using a pre-order tool isn’t going to help reduce employee theft or mitigate warehouse shrinkage.
Every business venture has risks. The primary risk of pre orders is the mystery behind them. When the pre-ordered item is still in production, it hasn’t gone through the testing and approval process. The pre order item could arrive late or, worse, never get out of the production phase.
When you add a pre-order option, you have more facets within your inventory management operation. Unfortunately, more moving parts can result in more room for operational error. Extra aspects often create the need to have access to inventory anywhere and at any time. Also, when you offer something that the consumer hasn’t gotten, you need to have open (and fairly constant) communication about where the product is within the production process, as well as communication that makes the initial pre-order parameters exceedingly clear.
When you are deciding whether or not to use pre-orders within your business model, it is important to consider whether this strategy is the best fit for you and your organization specifically. Some of the questions and other aspects to consider — regardless of what your organization is — are as follows:
- Does the pre-order mess up any sort of operational workflow? If so, where? Can it be overcome?
- Do you have a plan if production is slowed down?
- Do you have other products or services that you can rely on for revenue?
- How consistent has your production been in the past?
- How much will you need to spend to market and promote the product? Does the amount you need to spend validate offering pre-orders? Where will you promote your pre-order?
- How can you leverage dead zones?
- How far in advance should you offer your pre-order?
- What sort of incentive will you offer for a pre-order? How long will the offer be good for? Will there be any sort of limitation on the number of pre-orders offered?
Ultimately, organizations want to make sure that a pre-order strategy aligns with their current business plan, company dynamic/workflow, short-term/long-term goals, and any other specifics that keep their operations going.