How do companies know if a product is doing well?

Well I am not an expert in retail logistics. But your initial hunch is correct that they can not tell based on how much a store buys from them on the initial purchase. But, if the item is selling well the retail store will have to order more. And this is how a company can tell. Also they can track their own production and see how many they have sitting around etc. Obviously the manufacturer does not know how many Ipods are sitting around in a store. But if best buy keeps ordering X amount of units a month they know they are selling roughly the same amount of units a month.

I think the portion to add to LKid’s explanation is that Best Buy’s inventory per store may not tell you much, but their overall inventory from the few warehouses they run would tell you quite a bit. One warehouse may feed an entire region and probably replenish the stores at least once a week. Even if there’s a run on iPods in a certain store, Best Buy would rather ship some they’ve already bought than order more so they’ll move things around. Once that warehouse is out though, they’ll get more from the manufacturer.

The same with a major record store, or even independents who would buy from a distributor. The manufacturer would just need to track orders from those that order directly from them and then figure in any returns.

The POS (point of sale) software that virtually all stores of any size run today tells them exactly how many units of a product go out the door on any given day (or hour). The question is, does Best Buy share that data with any of their vendors? I know a POS specialist at another chain – I will ask, am curious about this as well.