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Why the 'Oprah effect' can take down supply chains

Why the 'Oprah effect' can take down supply chains

When Oprah Winfrey endorses a company's product, the marketing team whoops and the supply chain team grimaces. History shows that if you're going to get the "Oprah Effect," you better be ready to deliver the goods.

What company wouldn't want the endorsement of Oprah Winfrey? You get your cupcakes, book or moisturizer talked up on her TV show or, even better, get chosen as a "Favorite Thing."

It's the stuff of dreams for brand marketers everywhere.

Like this one-time struggling Florida cake maker, We Take The Cake, which was picked as a favorite thing in 2004 and now has a thriving and expansive business.

But Oprah's Midas-like Touch can easily overwhelm a fledgling company-just ask execs at Kashwere LLC, where operations were overwhelmed after Oprah declared her love for their robes.

She can also influence entire industries, as she did in 1996, with her episode on Mad Cow Disease and the cattle industry that led her to exclaim that she'd never eat another burger again. The next day, according to one account of the legal saga that ensued, beef futures plunged, leaving industry experts to call this the "Oprah Crash."

The woman can move markets.

Oprah recently moved more markets in downtown Chicago, in her season-opening show this week. Her presence at the Michigan Ave. shopping district accounted for an approximate 10 percent net gain in shopper traffic from what would have been expected, given the shopper traffic trend on Tuesdays in August, according to retail data from ShopperTrak. (Any bumps in sales at those stores weren't immediately available.)

So while Oprah's Effect surely delights CEOs and the bean counters, what about the supply chain, forecasting, logistics and inventory managers charged with ensuring that product is always available for purchase or ordering? (After all, counting on an Oprah blessing to pump life into your business is like basing your retirement savings on winning the lottery.)

Winning the Oprah lottery can be a blessing and a curse-even at companies that have the best supply chains. Take the case of Amazon.com and the launch of Kindle, its e-book reader. According to a February 2009 Wall Street Journal article, Oprah's Oct. 24, 2008, enthusiastic endorsement of the Kindle ("My new favorite thing in the world") had an unsurprising effect:

"The day of the endorsement, visits to Amazon's website were up 6 percent over the previous Friday, according to Experian PLC's Hitwise. Web traffic going from Oprah.com to Amazon.com increased more than 15,000 percent." Here's the funny thing, though: Amazon.com had some early warning that the endorsement was coming, yet by November the Kindle was out of stock on Amazon.com and during most of the 2008 holiday shopping season. All along, Amazon has been mum on the reasons behind the out-of-stocks, as have its suppliers. CEO Jeff Bezos said on a conference call: "We had anticipated strong demand and what we saw was stronger than that. So, we're extremely grateful for that, and we will keep marching forward here," according to the Journal. (Sounds like a "Thank You, Oprah" to me.)

Sometimes, of course, product shortages can actually be a convenient way to build product buzz and keep price points higher, due to intense demand. In an article on the Nintendo Wii shortages, Kevin O'Marah, chief strategist at AMR Research, told CIO.com last year that underestimating demand on an electronics product is better than overestimating it, "because then you're stuck with junk you can't sell," O'Marah says. "When you underestimate demand you just kick yourself for not getting all the money you could have gotten."

For more than three years, of course, the Nintendo Wii was chronically in undersupply, though it seems Oprah Winfrey didn't have anything to do with that.

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