Disclosing Low Product Availability : An Online Retailer's Strategy for Mitigating Stockout Risk

Ensuring product availability and the successful fulfillment of orders are key priorities for any company operating in the retail industry. In this paper, we investigate how sharing information regarding the low availability of certain items can influence customers' purchase decisions, both preventing stockouts and mitigating the negative effects of stockouts with respect to customer long-term behavior. It is hard to predict the net impact of sharing item availability information on business metrics ex-ante because there are multiple effects that might act in opposite directions. The information sharing policy could lead customers to not purchase items that are low in availability because those customers are averse to stockouts. Contrariwise, this approach might increase the popularity of low availability items because consumers' cognitive bias leads them to place a higher value on items that are scarce.In a field experiment, we exogenously share low item availability information with a random subset taken for a sample of more than 840K customers using Instacart. We find evidence that customers are 25% less likely to purchase low availability items when item availability information is disclosed. In addition, we show that low product availability disclosure leads to higher customer satisfaction and positively affects the platform's fundamentals in the context of our field experiment. More specifically, our results indicate that this innovative and cost-free approach leads to a 5.33% increase in revenue per customer and a 4.9% increase in order frequency over the long term.However, such policies are not a panacea for a lack of accurate real-time inventory data or an inability to perfectly predict product availability in advance. We present evidence that disclosing low item availability can, in principle, have both positive and negative effects on customers' spending, and that customer spend and order frequency are influenced by the proportion of items displayed that are labeled as having `low availability'