What is a pre-order
Pre-orders: How pre-orders are revolutionizing e-commerce
Pre-order, what's that?
A pre-order is an order for a product, a commodity that has not yet been released or is currently not in stock. Articles from pre-orders are saved in the shop system and can be sent to the customer as soon as they are available. This principle is not a new invention; pre-orders are available in conjunction with the retailer Made to order often offered for larger jobs such as kitchens, special furniture or handcrafts. But most restaurateurs also offer food to go in the catering industry, and that also falls under the pre-order category.
But not every pre-order is the same, depending on the situation, different types of Pre orders distinguish. A start-up that needs capital for the first run of production has different requirements than an established brand that would like to test the demand for the next product line. There are also various payment methods for pre-orders, which we will go into in more detail later.
Pre-order in e-commerce
The usual sale of goods via the online shop can pose a significant risk to the company's capital. Many thousands of euros go into product development and inventory, which may or may not sell. The problem with this is that it is often not possible to say in advance how the products will be received by the consumer. Capturing pre-orders in advance can provide a better benchmark and prevent wasting resources.
Contract manufacturing - the end of overproduction
Especially now, in times when the more sustainable production of goods is becoming increasingly important, the concept of contract manufacturing is also gradually becoming more popular. The Made to order, Make to order or Build to Order called, is a manufacturing process that begins as soon as an order is received from a customer. This process can be combined with a pre-order. For the manufacturer, this has the great advantage that he does not need any capital-binding storage of articles. He can also react more quickly to changes in the market and respond better to the needs of his customers.
A disadvantage that arises from MTO production is that the manufacturer can hardly achieve positive economies of scale (e.g. volume discounts). And the customer has to expect longer delivery times because the products are not in stock, as well as more expensive prices. Nevertheless, it is up to the manufacturer through the pre-order and the process of contract manufacturing, possible to counteract overproduction and to use its raw materials more sparingly.
Make to Order / Build to Order vs Make to Stock
Payment methods for pre-order
As with normal payments in e-commerce, there are also various methods of how the payment can be processed with pre-orders. Each of these pre-order methods has its own ideal use case.
This is by far the most common type of pre-order. It is essentially a standard purchase that is processed like a regular purchase in the checkout of the online shop, only with a longer shipping time. In addition, instead of the “Buy now” button, the phrase “Pre-order” can be seen.
+ Products and goods are paid for in advance, which has a positive effect on cash flow.
+ Systems can be set up so that sold out products are automatically accepted as pre-orders.
+ The interest in a product is recorded which is currently no longer in stock, but is available again at a certain point in time.
+ Usually there is the possibility to display additional information, for example the shipping date.
- Regular orders are mixed with pre-orders in the customer's shopping cart. This can complicate shipping costs and lead to communication problems.
- Not necessarily suitable when it comes to long lead times. The customer has already paid and would like to receive his goods as soon as possible. In the event of delays with suppliers or the shipping service providers, this can have a negative effect on the online shop and intensify customer service.
With this method, the customer places the product in the shopping cart, checks out, but has not yet paid. Customer and seller agree to process the payment at a later point in time and both parties can withdraw from this transaction up to this point in time. In the online shop, however, these orders are stored in a separate system until they are ready for collection.
+ The demand for upcoming products can be analyzed, as the customer is only charged with the payment as soon as these are available.
+ It is possible to test new products / variants by placing a pre-order, but these goods are only invoiced and delivered if there are enough orders.
+ The customer can be asked to pay at will, regardless of whether this is done before or after the order is placed with the supplier.
+ All pre-order orders are recorded in a separate system and are therefore separate from the regular orders
+ With e-mails such as newsletters, the customer can be regularly informed about the status of his order and the payment link can also be transmitted.
+ Pre-orders with a later payment date do not burden the customer's mental account, so they are tempted to buy more without spending more money directly.
- Payment is not made immediately.
- Often times, not all pre-orders are converted by the system once payment has been made.
- Products that are not in stock are not automatically listed as pre-orders.
Crowdfunding is based on the idea of convincing an undefined number of people to invest in a new product or project. The downside to this is traditional bank, angel or venture capital investments. So that these projects can be implemented, there are some crowdfunding sites on the Internet, such as Kickstarter or IndieGogo, which allow new companies or brands to list pre-production products with a rough delivery schedule, which is usually several months.
+ Crowdfunding can be used to validate a new business or product idea, as a minimum revenue target must be set and achieved before the orders are carried out.
+ You receive money in advance that can be used to finance production.
+ Investors are often early adopters and are usually more tolerant of small product problems and delays.
+ Crowdfunding platforms like to support product ideas with their audience, through newsletters, etc., especially if the product is particularly innovative or contemporary.
- Not very good for incremental product versions, more suitable for new ideas and companies.
- Running and setting up a campaign page using a third-party platform can be a lot of work. Product texts have to be written, pictures and videos have to be incorporated that present the product to the audience in the best possible way.
- Crowdfunding platforms usually charge around 5 percent commission and in addition to transaction fees.
- Most successful crowdfunding projects only achieved their goals because they drove traffic to a third party website, such as Kickstarter.
- The “early adopters” who invest in the idea may not be the actual target group.
Some countries prohibit or restrict the purchase of a product without inventory for that product. If this is the case with products in your online shop, the “pay later” purchase may be the only option. Nevertheless, you should do your own research again if you are considering offering pre-orders in your online shop.
Pre-order in shop systems
Whether it is books, clothing, toys or other products that an online shop sells, almost anything can be done pre-order. A shop system that lists these special properties is only required so that these pre-orders can be realized. Here is a brief overview:
The online shop software Magento offers its online shop retailers more flexibility with complex processes such as pre-orders. In this way, orders can be accepted even before a product is published. Items that are currently out of stock are provided with the expected delivery date.
The shop system plugin WooCommerce from WordPress does not offer pre-orders. You can help out with a plugin. The “WooCommerce Pre Order Sales, Bulk Discount & Time Counter” plug-in offers its users a wide range of offers in connection with pre-orders, volume discounts and time counters. The plugin is fully customizable and supports both pre-orders, which are charged in advance as well as when released.
The modular online shop system also offers plugins in its own Shopware Store that are geared towards pre-orders. In this way, the online retailer can select and buy the right plug-in according to his wishes.
The basic version of Shopify also does not offer an option for pre-orders, but a plugin can be used here as well. In the Shopify App Store there are various free or paid add-ons with which it is possible to monitor products from pre-orders either in the order management system of Shopify or in the dashboard of the app.
Tips for a successful pre-order process
It is easy to enter products for pre-order in your own webshop, but then to advertise them properly and to encourage users to order the product even though it is not in stock is difficult. With these tips, you should be able to bring more traffic to the product detail page and record orders.
➤ good product title
➤ appealing product images
➤ Insightful product description
➤ Information on delivery times
➤ More on the topic of setting up a PDP here
Social media presence
➤ Invite customers to share the product
➤ Present the product in Facebook groups or forums
➤ Equip your own social media channels (e.g. Facebook, Instagram, Pinterest, Twitter, Snapchat or TikTok) with image, video and text material
➤ Work with influencers
➤ Get backlinks through crowdfunding sites
Conclusion: check the next product innovation with pre-orders
Pre-orders in e-commerce are a good tool for validating products, building a hype, and activating and improving cash flow. Regardless of whether it is a start-up with crowdfunding, a pre-order for the publication of new products with the function of “pay later” or “pay now” or just to replace the “out of stock” button. Because of these many uses of pre-orders, it will be a great addition at any stage of the business cycle.
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