Managerial response to stockouts: the effect of remedies on consumer behavior

Stockouts remain a significant problem for retail firms. Estimates of stockout rates in the past forty years consistently averaged about 8 percent. The consequences of stockouts transcend the retail store to include its supporting supply chain. In addition to the effect on the behavior of consumers, stockouts can impact the firm’s replenishment policy, the level and location of inventories and the cost of emergency shipments needed to replenish out-of-stock items. While there is a substantive literature in logistics measuring frequency and consumer response to stockouts, investigation of the effect of remedies on consumer response is sparse. To address this problem, we investigate the effectiveness of five remedies as tools to manage retail stockouts: apology, raincheck, home delivery, trade-up and discount. A remedy is an incentive to induce consumers to not leave a store in response to a stockout. Results suggest that remedies usually work.