Navigating Retail Stockouts: Transparency or Sleight of Hand? 🛍️
Strategies for Handling Stockouts: Insights for Retailers on Managing Stock Shortages
In the ongoing saga of product shortages and empty shelves, retailers face a dilemma: honest communication or clever deception. As lockdowns persist worldwide, the demand for clear and consistent inventory remains high. But, with limited stock, retailers must consider sharing information or strategically showcasing more items than they actually have.
On one hand, truthful communication builds trust with customers by keeping them informed about product availability and usual inventory levels. However, shelf-empty stores don't exactly instill feelings of security or efficiency—two things customers want when they shop. Product abundance can stimulate demand, while scarcity tends to reduce it.
On the flip side, pretending to display a fully-stocked store can attract the "low information" customer, the shopper who's unsure what they're looking for. This strategy can boost sales for both branded and private-label items, which are often higher-margin products. But there is a risk: losing the customer's trust and deterring them from buying a product if it's not in its usual location.
So, what's the smart move?
Well, customers everywhere crave higher product availability. Since changing products or stores can be a hassle, retailers aren't so much faced with a choice between strategies as much as communicating information efficiently. By giving signals that customers respond to, stores can nudge their customers towards products they still have in stock.
Catching the Signals 🔮
In a series of research papers, my colleagues and I have been digging into the notion of "equilibrium language" in operations, trying to figure out if this theory has any practical applications. The core idea is that certain physical or verbal signs offer insights into the function of a system, prompting different responses.
For insight, let's review the theory of information provision in a call center. When you call a call center and encounter announcements like "high call volumes" or longer-than-usual waiting times, these are signifiers—or "cheap talk" as we call it—designed to influence your behavior.
When the queue is short, the call center encourages you to stay on the line until the next available agent becomes free. Conversely, when the queue is long, the call center wants you to remain on the line only if your issue is critical. These signals are information-rich and persuasive because both you and the call center are aligned—you want to stay on the line when the line is short and hang up when it's long, and the call center has little incentive to misrepresent the situation. With this mutual interest, equilibrium language is possible in call center or store messaging.
The Dishonest Truth 🤐
However, is the same idea of "equilibrium language" applicable in a stockout situation where a store sign and a fully-stocked shelf are competing signals, each inspiring different actions? The answer is no. Unlike the call center, the customer and the store are not in alignment—the customer wants to know whether the scarcity is store-specific or industry-wide, while the store wants the customer to take the same action in both cases: find a substitute and continue buying from them.
In such a situation, "equilibrium language" falls short. It seems retailers must dare to be truthful or risk losing customer trust. Perhaps this isn't a store-specific strategy but a product-specific one: for high-loyalty brands, it may make sense to alert customers about industry-wide shortages, while low-loyalty brands might be better off with a "face up" strategy, regardless of the underlying situation.
So, what does this all mean for us as customers? During these times of scarcity, do your own research to find those hard-to-find items and avoid being swayed by store signals—they're designed to influence you, not inform you.
- In the retail industry, the application of AI in technology could potentially enhance inventory management, providing more accurate forecasts and mitigating stockouts.
- The finance sector has shown significant interest in the use of AI to analyze trade patterns, aiding businesses in making informed decisions and maximizing profits.
- The TV industry is seeing a shift, with companies investing in AI-driven production, enabling automated editing, but also raising concerns about job loss in traditionally human-centric roles.
- For researchers in the field of operations, the exploration of AI's role in providing equilibriums of information, particularly in retail stockouts, remains an intriguing topic for future study.
- In the realm of business policy, a more transparent approach in dealing with stockouts could be advocated, fostering a stronger bond of trust between retailers and their customers amidst ongoing industry-wide challenges.
