Photo: RetailWire
Are Retailers Helpless In Overcoming Panic Buying?
A university study led by Rensselaer Polytechnic Institute finds rationing generally doesn’t work and emergency authority figures – not retailers – stand the best chance at reducing “panic buying” during disaster-related situations.
Managing supply was deemed nearly an impossible task for retail In the study. Collected surveys in dozens of countries showed a typical food distribution center has two days’ worth of supplies. The researcher’s survey found that of households that engaged in panic buying during crises, 80 percent increased their inventories by a week and a half.
“Managing demand is essential because modern supply chains rarely have the ability to quickly increase production and distribution of essential items,” said Jose Holguin-Veras, a transportation engineering professor from Rensselaer, in a press release.
As far as controlling demand, rationing, whether voluntary or mandatory, was found to often fall short for three reasons. Rationing:
- Is typically implemented too late in the crisis when inventories are already too low to avoid shortages for many consumers;
- Has a high risk of being perceived as a social cue of a worsening crisis, causing consumers to increase purchases;
- Is not coordinated among retailers, enabling consumers to shop around for those not rationing and allowing others to sell their supplies at higher prices.
“Not surprisingly, rationing has worked well in cases where there is a legal framework—typically in the form of an emergency law—that allows the government to mandate rationing and price controls, such as Taiwan [in 2020]. However, most countries lack such powers,” Prof. Holguin-Veras said.
One solution promoted in the study was to highlight messaging from “trusted change agents” (TCAs), which include the Red Cross, national/state/local emergency responders, firefighters, and national/state/local health officials. An accompanying survey found 89 percent of consumers would limit their purchases if asked by TCAs.
The study concluded that tempering panic buying during crises requires collaboration between public, private and humanitarian organizations. “The public sector has the legal authority to intervene when needed, the private sector has control over the access and supplies, and the humanitarian sector has the deep community connections,” Prof. Holguin-Veras said.
Discussion Questions
DISCUSSION QUESTIONS: What can retailers do to lessen panic buying during crises? Do you agree that rationing frequently backfires?
Poll
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Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Brian Cluster
Director of Industry Strategy - CPG & Retail, Stibo Systems
During crises, some retailers implement a form of rationing by placing limits on the number of items that can be bought. This doesn’t always prevent shortages, but it is seen as being fair and maximizes the number of people who can get items that are in high demand. However, the reality is that once panic buying sets in it is very hard to stop. People behave irrationally so talking and advising rationally may help a little but it won’t solve the issue.
It’s difficult to imagine that retailers can do anything to lessen panic buying especially given panic’s potential to induce aggressive behavior including violence. Panic buying feeds on itself and rationing often adds fuel to the fire. I agree with the article that the only solution might be through a combination of public, private and humanitarian organizations but the key will be the proximity of any action to the start of the panic.
Collaboration among public, private and humanitarian organizations can calm consumers during a crisis. The messaging needs to address and soothe consumers’ heightened emotions before trying to reason with them.
Rationing can backfire as it signals scarcity, which can incite fear, greed and hoarding among consumers.
Ration sooner than later. It’s uncomfortable, but it keeps the playing field level for as many people as possible.
Very rarely are there no indicators and alerts that panic buying and hording is going to occur. The time may be tight and there may be little the supply chain can do about it, but retailers and wholesalers usually know it’s going to happen. The key is to get ahead of the situation. Be transparent. “You don’t need to buy enough toilet paper to last a year. Let’s buy less so everyone can have enough for the next month.” “We may be out-of-stock for a little while, but your preferred item will be back on the shelf very soon.” Signage, digital messaging and people in the aisles will help.
In a period of low supply and potential risk of panic buying retailers should have a game plan on how to execute in these times. Communication with your staff and to the public is key to mitigating long-term loyalty risk of out of stocks and to help reduce panic buying.
In preparing for these crises, retailers should set up a suggested max customer order quantity for each particular item potentially at risk in their product data master so all stores are executing in the same way.
Identifying substitutes for particular segments is another way to reduce the impact by providing options for consumers. If there is a shortage of Tomato soup, create an extra display with the core items to make it from scratch.
I dont believe rationing or panic buying are tasks retailers need to control. They take the risk of investment in inventories and the storage costs and need to be able to turn inventory and convert sales in a manner that maximizes profitability and FIFO optimization. Like many market pressures on retail margins, they are external.
Rationing may sometimes backfire, but not rationing always backfires.
A retailer waiting for a government organization to take the reins is waiting for trouble. The retailer can only do what the retailer can control. In a time of scarce supply, the retailer can not control what is in the warehouse. Still, they can protect their inventory by limiting what an individual customer is permitted to buy. (How many of us recall seeing a shopper with a grocery cart -or two- filled with toilet paper.)
Let’s not ask the retailer to control what they can’t control.
One effective method to mitigate panic buying during crises is by using predictive analytics to foresee potential demand surges. This approach was highlighted in an HBR article about how Kraft Heinz used COVID response data from Johns Hopkins University, which allowed them to anticipate areas of high demand and route their products accordingly (think more Mac and Cheese on the shelf). However, this approach requires sophisticated analysis and data integration into demand planning and forecasting processes, which might not be feasible for all retailers.
While rationing can help distribute resources more equitably and prevent rapid stock depletion, it can also backfire. When customers become aware of rationing, it may heighten their sense of urgency and scarcity, prompting them to buy up to the limit, even if they don’t need the maximum quantity. This applies to both consumers and retail customers, and can contribute to increased demand and exacerbate the very stock shortages that rationing was intended to prevent.
Therefore, retailers should implement rationing with caution, and in conjunction with clear communication with both their consumers and retail customers about supply levels. This communication can help alleviate concerns of scarcity. Providing regular updates about when more stock is expected can help reduce panic and the impulse to overbuy. Retailers can also work closely with suppliers to try and increase stock levels during a crisis to meet the surge in demand.
This study would be more useful if it was clearer what “working” means; and how was it measured: if a retailer restricts sales to one/customer was that “working” what if the customer comes back five – of fifteen – times or goes to other stores?? Should this even be a concern ?? (Depends a lot on the type of goods, I’m thinking).
I think it’s also useful to differentiate between self-perpetuating panic behavior – the second (of the three) situation mentioned – and actual shortages….nothing is going to truly “work” if supply is grossly less than demand.
This is a poor study upon which to draw conclusions. What common retailing purchasing decisions do modern retailers have with many of those in other countries, the absurd premise that they manage demand (this is a supply side issue), and how the USA even compares to most other countries where electricity and plumbing are easily available, refrigerators are large, and the amounts of food purchased for each shopping visit is much larger than in other countries. We establishing a basis to compare panic buying around the world we have to start with a common base of understanding, common business standards, and cultures that embrace the same premise (houses in the USA are larger, with more storage, closets, etc.) along with the standard of living comparisons. This article clearly does not even start by clearing identifying this, let alone comparing the similarities.
Well, managing the panic buying phenomenon is mainly beyond the retailer; however, the retailer can employ multiple supply chain strategies to ensure that it can optimize the supply. For example, moving from just-in-time to inventory overstock of necessity goods or ensuring that you have an automated and intelligent order placing mechanism.
Having said this, I firmly believe the future of retail is an ecosystem-driven play where multiple entities in an industry need to work together to avoid or better handle crises.
Throughout the pandemic we saw a slew of supply shortages and a rise in panic buying across the nation. As a result, many retailers set rations into place by limiting the amount of a product consumers could buy, and we saw this effect nearly every category – from toilet paper to Lysol and critical food staples like milk and eggs. While rationing can help reduce people buying products in bulk, it’s not an effective solution for the long-term. Instead, it’s crucial that today’s retailers have access to real-time, actionable data and insights to better understand product assortment in specific geographic locations, down to store level. This is helpful not only for their products, but in order to track the competition as well.