Disclosing Low Product Availability: An Online Retailer's Strategy for Mitigating Stockout Risk

38 Pages Posted: 23 Jun 2022

See all articles by Benjamin Knight

Benjamin Knight

Instacart

Dmitry Mitrofanov

Boston College, Carroll School of Management

Date Written: June 14, 2022

Abstract

Ensuring product availability and the successful fulfillment of orders are key priorities for any company operating in the retail industry. In this paper, we investigate how sharing information regarding the low availability of certain items can influence customers' purchase decisions, both preventing stockouts and mitigating the negative effects of stockouts with respect to customer long-term behavior. It is hard to predict the net impact of sharing item availability information on business metrics ex-ante because there are multiple effects that might act in opposite directions. The information sharing policy could lead customers to not purchase items that are low in availability because those customers are averse to stockouts. Contrariwise, this approach might increase the popularity of low availability items because consumers' cognitive bias leads them to place a higher value on items that are scarce.

In a field experiment, we exogenously share low item availability information with a random subset taken for a sample of more than 840K customers using Instacart. We find evidence that customers are 25% less likely to purchase low availability items when item availability information is disclosed. In addition, we show that low product availability disclosure leads to higher customer satisfaction and positively affects the platform's fundamentals in the context of our field experiment. More specifically, our results indicate that this innovative and cost-free approach leads to a 5.33% increase in revenue per customer and a 4.9% increase in order frequency over the long term.

However, such policies are not a panacea for a lack of accurate real-time inventory data or an inability to perfectly predict product availability in advance. We present evidence that disclosing low item availability can, in principle, have both positive and negative effects on customers' spending, and that customer spend and order frequency are influenced by the proportion of items displayed that are labeled as having `low availability'.

Keywords: online retail, field experiment, inventory availability, information sharing, stockout risk, reference effect

Suggested Citation

Knight, Benjamin and Mitrofanov, Dmitry, Disclosing Low Product Availability: An Online Retailer's Strategy for Mitigating Stockout Risk (June 14, 2022). Available at SSRN: https://ssrn.com/abstract=4137758 or http://dx.doi.org/10.2139/ssrn.4137758

Benjamin Knight

Instacart ( email )

50 Beale St
#600
San Francisco, CA 94105
United States

HOME PAGE: http://https://www.instacart.com/company

Dmitry Mitrofanov (Contact Author)

Boston College, Carroll School of Management

257 Beacon Street
Chestnut Hill, MA 02467
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
346
Abstract Views
1,329
Rank
165,459
PlumX Metrics