Dynamics in consumer response to product unavailability: Do stock-out reactions signal response to permanent assortment reductions?

This paper investigates consumer reactions to out-of-stocks (OOS) – which are unexpected and temporary in nature – as opposed to permanent assortment reductions (PAR). We discuss similarities and differences between OOS and PAR reactions as well as their underlying factors, and empirically test our propositions in two product categories. Next, managerial implications are discussed. Our results indicate that retailer losses incurred in case of a PAR may be substantially larger than those in case of a stock- out for the same item, suggesting that retailers (i) should be cautious in extrapolating consumer response to stock-outs, to situations where the item would be permanently removed, (ii) should keep a minimum of variation in the assortment even if this implies a higher stock-out risk for these items, (iii) may wish to explicitly signal the temporary character of a stock-out by leaving the shelf space of the OOS item unused. The results further suggest that stock-out losses may disproportionally grow with stock-out frequency and duration, emphasizing that even if OOS cannot be completely avoided, efforts should be made to keep their occurrence and length within limits.