Assessing the Impact of Price Promotions on Consumer Response to Online Stockouts

• DOI: http://doi.org/10.1111/jbl.12095
• Date: 01 September 2015
• Published date: 01 September 2015

Assessing the Impact of Price Promotions on Consumer Response

to Online Stockouts

Simone T. Peinkofer, Terry L. Esper, Ronn J. Smith, and Brent D. Williams

University of Arkansas

The recent growth of e-commerce technologies has disrupted the traditional retail environment, leading to more consumers shopping online.

While the manner in which consumers shop is changing rapidly, our understanding of how changing consumer behaviors affect retail sup-

ply chain management is lacking. In particular, our understanding of how consumers react to stockouts in an online shopping environment

remains unclear. Making the challenge even more difficult is the fact that price promotions are heavily used to attract consumers in an online

retail environment where consumer switching costs are low. This research develops a theoretical framework, based on expectation-disconfirma-

tion theory, to explain the effect of price promotions on consumer expectations of product availability and their reactions to stockouts in an

online retail environment. Surprisingly, our findings suggest that consumers are actually less dissatisfied with a stockout of a price promoted

item than a nonprice promoted product and are less likely to switch to another retailer’s website. These findings may suggest that price promo-

tions actually create a type of switching cost in the online retail environment, leading to interesting implications for researchers and supply

chain managers.

Keywords: stockout; online retailing; price promotion; consumer response

INTRODUCTION

The growth of e-commerce and mobile technologies in the con-

sumer market has resulted in the need for multichannel strategies

for retailers (Rigby 2011; Brynjolfsson et al. 2013). Likewise,

the academic investigation of supply chain management (SCM)

phenomena has shifted, to be more commensurate with the

changing demands of consumers (Rabinovich 2004; Rabinovich

and Bailey 2004; Griffis et al. 2012a). In essence, the reality of

this new retail landscape has resulted in the need for a fresh

understanding of how to most effectively manage supply chains

with the intent of maximizing performance across retail channels

and addressing emerging consumer issues (Frankel et al. 2008).

The notion that consumers now have lower switching costs,

increased options, and seemingly immediate switching capabili-

ties when shopping (Rigby 2011; Brynjolfsson et al. 2013) is

particularly salient with regard to inventory management deci-

sions. Inventory availability status (i.e., whether or not a product

is in stock) is a key measure of retail supply chain performance

(Emmelhainz et al. 1991) considering that stockouts are likely a

result of poor supply chain planning or execution (Raman et al.

2001; DeHoratius and Raman 2008; Ettouzani et al. 2012). Thus,

a growing body of SCM research has emerged with a focus on

understanding how consumers respond to stockouts (Zinn and

Liu 2001), and how order fulfillment and distribution strategies

can prevent stockouts (Rabinovich and Evers 2003; Rabinovich

2005; Griffis et al. 2012b). The purpose of this paper is to con-

tribute to the growing dialogue on consumer issues in SCM by

investigating how consumers respond to stockouts in the new

reality of online shopping experiences. More specifically, we

investigate consumer response to stockouts with consideration of

whether or not a product is price promoted, given that price pro-

motions are particularly important in the online retail channel.

The extant literature has clearly established the SCM difficul-

ties associated with maintaining inventory availability for price

promoted products. Price fluctuations are considered a major

operational cause of the bullwhip effect (Lee et al. 1997), and

promoted products have been shown to be twice as likely as

nonpromoted products to be out-of-stock (Coca-Cola Research

Council, and Andersen Consulting 1996; Corsten and Gruen

2003). Further, consumers are thought to have higher expecta-

tions of product availability when demand is stimulated by a pro-

motion (Taylor and Fawcett 2001), suggesting that consumer

responses to stockouts of price promoted products may be differ-

ent (Sloot et al. 2005), especially in an online retail context

(Breugelmans et al. 2006; Dadzie and Winston 2007). Taken

together, it seems that retailers must accept that price promotions,

from an SCM perspective, are quite costly. Either the retailer

must carry additional inventory to deal with the increased

demand uncertainty or be willing to accept the higher stockout

costs associated with price promotions.

The scenario where price promotions, stockouts, and con-

sumers meet in an online retailing context leads to an interesting

research opportunity. Product promotions result in increased

inventory availability expectations, yet the SCM implications of

promotions make the ability to ensure product availability a more

difficult and complex proposition. Moreover, and perhaps even

more important, these issues have not been explored in the

online retail context to date although 56%of surveyed con-

sumers recently reported that a price promotion is the most entic-

ing promotion an online retailer can offer (Becerril-Arreola et al.

2013). Thus, the potential combined impact of more complex

supply chain processing, higher in stock expectations, and a

shopping format characterized by lower switching costs serve as

motivation for this research.

Using expectation-disconfirmation theory (EDT; Oliver 1981)

as a theoretical lens, this research utilizes experimental methods

Corresponding author:

Simone T. Peinkofer, Department of Supply Chain Management,

Sam M. Walton College of Business, Business Building 475,

University of Arkansas, Fayetteville, AR 72701, USA; E-mail:

speinkofer@walton.uark.edu

Journal of Business Logistics, 2015, 36(3): 260–272 doi: 10.1111/jbl.12095

© Council of Supply Chain Management Professionals