Dynamics in consumer response to product unavailability: do stock-out reactions signal response to permanent assortment reductions?

Abstract

This paper investigates consumer reactions to out-of-stocks (OOS)—which are unexpected and temporary in nature—as opposed to permanent assortment reductions (PAR). We discuss similarities and differences between OOS and PAR reactions as well as their underlying factors, and empirically test our propositions in two product categories. Our results indicate that retailer losses incurred in case of a PAR may be substantially larger than those in case of a stock-out for the same item. This suggests that retailers (i) should be cautious in extrapolating consumer response to stock-outs to PAR situations, (ii) should keep a minimum of variation in the assortment even if this implies a higher stock-out risk, (iii) may wish to explicitly signal the temporary character of a stock-out by leaving the shelf space of the OOS item unused. The results further suggest that stock-out losses may disproportionately grow with OOS frequency and duration, emphasizing the need to keep their occurrence and length within limits.