Dynamics of Consumers’ Dissatisfaction Due to Stock-Outs

Abstract

In this paper, we quantify the effects that product stock-outs led consumer dissatisfactions have on consumer behavior. The study yields a practical solution that retailers could use to determine how a representative consumer is likely to respond to a stock-out situation and hence be proactive in relationship management. We also determine backorder costs that captures both the short term and long term effects of stock-outs and helps retailers in assortment planning. We use the concept of dissatisfaction and the theory of dissatisfaction dynamics to link past temporal patterns in stock-outs to the current dissatisfaction levels and its effects of consumer choice (substitution, postponement, and abandonment). The richness in consumer behavior and the variability in the dissatisfaction levels allow us to: (a) Confirm the existence of a nonlinear relationship between dissatisfaction and consumer behavior and even characterize it as an asymmetric S-shape; and (b) Develop realistic estimates of the backorder costs as a weighted sum of the probabilities of various consumer actions times the costs associated with each action.