Investigating Effects of Out-of-Stock on Consumer Stockkeeping Unit Choice

Abstract

Out-of-stock (OOS) is commonly observed in the retail environment with consumer packaged goods, but there have been few empirical studies of the effects of OOS on consumer product choice, because there is a lack of OOS information during households' purchase occasions. The authors study the effects of OOS on consumer stockkeeping unit (SKU) preference and price sensitivity, using a unique data set from multiple consumer packaged goods categories with information on recurring OOS incidents. They obtain several substantive findings: (1) Consumers' price sensitivity tends to be underestimated when OOS is not accounted for in a discrete choice model; (2) for consumers who have shorter interpurchase time, their preference for a SKU is attenuated when it is frequently OOS; and (3) for consumers who purchase from a small number of SKUs, their preference for a SKU is reinforced when facing OOS of other similar SKUs, whereas it is attenuated when facing OOS of other similar and also frequently purchased SKUs. The authors also illustrate that their findings can help retailers evaluate the effect of OOS on category revenue and predict time-varying market shares of SKUs in periods following OOS incidents.