A Recommender System to Nudge Customers in a Capacity Constrained Supply Chain

33 Pages Posted: 3 Apr 2015 Last revised: 4 Oct 2015

See all articles by Na Zhang

Na Zhang

Purdue University - Krannert School of Management

Karthik Natarajan Kannan

Purdue University

J. George Shanthikumar

Purdue University - Krannert School of Management

Date Written: October 3, 2015

Abstract

We seek to develop a recommender system that takes into account supply chain constraints regarding the availability of a product while nudging the customers to purchase it. The motivation to study this problem was because a firm faced availability constraints for one of its products but the available quantities still exceeded the current demand. To identify customers to nudge, we develop a Support Vector Machine (SVM) approach to rank order the customers based on their propensity to purchase the product. The underlying notion in our approach is that Type I errors in our classifier are not necessarily problematic but are potential nudging targets. Also, as a consequence, traditional ways of evaluating classifiers (with Type I and Type II errors) are not appropriate. Therefore, we conduct a field experiment to evaluate how well the identified customers are nudged through information and/or couponing. We find that, in terms of the successful nudges, our SVM-based approach performed better than other approaches. The experiment also generated insights about when couponing as opposed to information is more effective when nudging.

Keywords: Recommender Systems, Support Vector Machines, Field Experiments, Supply Chain Constraints

JEL Classification: C93, D12

Suggested Citation

Zhang, Na and Kannan, Karthik Natarajan and Shanthikumar, J. George, A Recommender System to Nudge Customers in a Capacity Constrained Supply Chain (October 3, 2015). Available at SSRN: https://ssrn.com/abstract=2588523 or http://dx.doi.org/10.2139/ssrn.2588523

Na Zhang (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Karthik Natarajan Kannan

Purdue University ( email )

Krannert School of Management
West Lafayette, IN 47907
United States

J. George Shanthikumar

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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