Multiyear Impact of Backorder Delays: A Quasi-Experimental Approach

When an item is temporarily out of stock, it is common practice for a retailer to inform customers that the item can be ordered but shipping is delayed. This is referred to as a backorder. Measuring the impact of backorder delays on future customer purchase behavior is critical for customer relationship management but challenging because of endogeneity: the best customers are most likely to experience backorders. In this paper, we develop a quasi-experimental approach to measure the effect of a backorder delay that generalizes to most online, durable goods retailers. We show that, on average, a backorder delay leads to a 2.1% decrease in customer orders the subsequent year and is moderated by shipping delay. Among customers who experience a shipping delay beyond 10 days, there is a 6.1% reduction in orders the subsequent year and a 4.6% loss in cumulative orders over four years. In our study, this results in as much as 25 million dollars per year in lost profit. Attempts to mitigate the negative effect of backorders by varying the quoted shipping date had little measurable impact. But our analysis uncovers moderators of the negative impact, which allows managers to prioritize customer outreach among buyers who experience a backorder delay.