Specifically, our analysis suggests that a policy of sharing item availability information with customers leads to a 4.9% relative increase in order frequency and a 5.33% relative increase in revenue per customer over the longer term (more on that in a moment). We propose that honesty is often the best policy to prevent stockouts. This virtual interface between customers and a platform like Instacart can share critical information with customers when stocks are low. The drawback to such an approach is that the retailer will invariably suffer from some amount of forgone sales. Going a step further, a retailer might downrank that same item within the search results if the inventory data shows a single unit remaining. For example, it’s standard for retailers to remove items from the storefront when the inventory management system reports that the balance-on-hand is zero. As a result, online retailers and marketplace facilitators can deploy a host of strategies to mitigate stockouts, including proactively recommending replacements, or dynamically changing which items are displayed on storefront. While not all online retailers are able to act as concierges in the same manner as a store employee, they do control the virtual interface that the customer uses. checking backstock or sharing when additional stock is scheduled to arrive). Customers shopping in person can reach out to employees who can then take action to minimize the loss of customer satisfaction (e.g. Physical stores and online retailers experience this problem of stockouts differently, and have different strategies for prevention and mitigation. The natural consequence of inventory data becoming outdated in the interlude between order creation and order fulfillment is that some customers won’t receive the item they ordered (i.e., a stockout). You have fallen victim to the fundamental problem of online retail: There is rarely a guarantee that an item visible to you at the time of order creation will actually be in stock by the time the order is fulfilled. #Linkedin stock full#Arriving at the store, even a full refund is unlikely to allay your disappointment. Unbeknownst to you, minutes after you placed your order, another customer who was already at the store picked up the last set of California rolls. After scrolling a nearby store’s website, you decide to order the California rolls in advance so that they are ready for you to pick up as soon as you go on your lunch break. The problem is even worse for marketplaces like Instacart, because they are a step removed from the retailer’s inventory management system.Īs an example, imagine that one day you are craving sushi for lunch. This is due to the fact that inventory management systems cannot know with certainty what a store’s stock level will look like for a given item hours or days in advance. While improvements to inventory management and predictive analytics may ameliorate the issue, such investments cannot resolve the issue of stockouts entirely. Most significantly, this strategy is unavailable to marketplaces which do not directly manage their own inventory.Įven retailers who have the resources necessary to invest in top-of-the-line inventory management technology are not immune to this problem. In addition, increased storage capacity can be expensive, necessitating some combination of greater space and/or reduction in product selection. the grocery industry), such an approach can lead to increased waste. However, among industries where products have an expected shelf life (e.g. One common stockout prevention strategy is to increase the amount of inventory kept on-hand. Typical strategies used to prevent and mitigate stockouts can be expensive. These experimental results suggest that, as with so many things, honesty is the best policy. How should retailers handle these increasingly frequent stockouts? Multiple experiments in the past year conducted by Instacart, where one of us is a data scientist, found that customers respond better if they’re warned there’s a chance an item is out of stock than if they find out after ordering. Recent research shows that by May 2020, the frequency of stockouts within the United States had increased to more than 35% - more than double the pre-pandemic level of 14%. The pandemic made this even tougher for retailers, thanks to the combination of supply-chain disruptions, increased spending on consumer goods, and labor force shortages. Even if there is a replacement, the customer might be frustrated, which could mean less customer loyalty and lower lifetime value. Barring a suitable replacement, the retailer misses out on revenue. Running out of stock is an expensive prospect for any retailer.
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