Wansum Li – Intro to Marketing

I came across an interesting article in the Globe several days ago about Lululemon’s product distribution. Part of Lululemon’s marketing strategy is to limit their supply so as to manufacture more demand. In this way, Lululemon is able to cut inventory costs, while creating demand for their products. In the fourth quarter of 2010, Lululemon did extraordinarily well; their sales well exceeded their predictions. However, Lululemon is now facing a supply shortage issue. Having wrongly forecasted their sales, they have not been able to keep up with the demand and understandably, consumers are unhappy about having to wait for their merchandise.

Limiting supply generates hype, which pushes customers to make snap decisions about purchases.  Other companies have used similar strategies. Banana Republic, for example, has had “power lunch sales”, where select merchandise is 40% off from 11am-2pm only. By restricting the timeframe of the sale, Banana Republic promotes a perception of urgency among customers. This method can be extremely effective in persuading customers to make impulse buys. While this strategy of creating demand can be beneficial, there is a higher risk of running into a supply shortage when the actual demand exceeds the forecasted demand, as Lululemon is experiencing now. One way to reduce the risk is to explore ways to improve the company’s supply chain, ie. having a more efficient supply chain that can adapt quickly to unexpected circumstances.

I think that Lululemon customers may be unhappy about waiting for their hoodies and yoga pants now, but the company certainly has a significant population of intensely loyal shoppers. I doubt that they are going anywhere.