Managerial response to stockouts: The effect of remedies on consumer behavior

Abstract

Stockouts remain a significant problem for retail firms. Estimates of stockout rates in the past fifty years consistently averaged approximately 8 percent. The consequences of stockouts transcend the retail store to include its supporting supply chain. In addition to the effect on the behavior of consumers, stockouts can impact the firm's replenishment policy, the level and location of inventories and the cost of emergency shipments required to replenish out-of-stock items. Although there is a substantive literature in logistics that measures the frequency of and the consumer response to stockouts, investigation of the effect of remedies on consumer response is sparse. To address this problem, the effectiveness of five remedies as tools to manage retail stockouts was investigated: apology, raincheck, home delivery, trade-up and discount. A remedy is an incentive to induce consumers to not leave a store in response to a stockout. In addition the influence of consumer characteristics (i.e., brand loyalty) and shopping situations (i.e., urgency of purchase) on the effect of each remedy on consumer behavior was examined. The results suggest that the remedies are usually effective. The most effective remedy is home delivery. The least effective remedy is a simple apology, which may actually increase the percentage of consumers leaving the store. The results also indicate that the urgency of the purchase and store loyalty have the most impact on remedy effectiveness. These results suggest that there are significant opportunities to use remedies as tools to manage the effect of stockouts on retail stores and their supporting supply chains.