Consumer Behavior in Stock-Out Situation

Business Research Method Project

Consumer Purchase Behavior

In Out-of-Stock Situations

Contents

Executive Summary        

Introduction        

Literature Review        

Objective        

Research Hypothesis        

Research Methodology        

Method of Research        

Sampling Design        

Data Analysis and Interpretation        

Findings        

Regression        

Chi-Square test        

Factor Analysis        

Conclusions        

Limitations        

Recommendation        

Scope of Further Research        

Bibliography        

Appendices        

Executive Summary

Supply chain management is undoubtedly one of the important focus areas of any corporate managers in today’s world of high competition. Maintaining a proper and optimum supply chain is very hard especially in the absence of required information. Losing a customer can be highly expensive. Also, it is highly essential to have cost control on inventories. In such a scenario, the information can help retailer to analyse various conditions and estimate the right quantity of inventory required by understanding customer behaviour.

In this study, we have analysed many factors that could impact customer’s purchase decision in case of out of stock situation, from various similar studies, and a few which could help retailers in mitigating this situation and better manage their inventory systems.

From this research it was concluded that except for the promotional offers condition and the time constraint, all other factors like gender of customer, style of shopping and place of shopping etc., have little or no impact on customer choice in out of stock situation from switching the brand, delaying the purchase to switching the store.

Introduction

Our topic for research was Consumer Purchase Behaviour in Out-of-Stock Situations. An out-of-stock situation is one, every retail shopkeeper wishes to mitigate. In today’s world, a stock out situation can prove very costly, not only in terms of the probable sale, but also in terms of customers. It is becoming increasingly important for retailers to manage their inventory costs and to satisfy each customer. Though it is not possible to make sure that each and every product that customer wants is available at the store, but to attain such confidence, a very high inventory would be needed to be maintained, which would invite high inventory costs. Hence it is imperative to keep a keen eye on your inventory levels. In this scenario, it is essential for retail stores to have some idea about how they can minimize their risks associated with stock out situations. From the secondary research, reviewing various literatures, it was learned that common three responses received from customers in out of stock situations are:-

a)         Delay or postpone the purchase

b)         Switching to some other brand keeping store same

c)         Switching the store

Comprehending the consequences of these responses, we considered that the delay or postponement of the purchase showcases a somewhat loyalty to retail stores and though the retailer will lose some part of its sale, the risks are not as high as they would have been in case the customer switches the store.

In the case where the customer switches the store, the store loyalty is at risk, which indicates that the customer has been lost for the future. Chances are that that customer may buy from some other store next time. Thus stock out situation not only lead to a loss in sales, but also make it difficult to build customer relationship and customer loyalty resulting in higher risks associated with this choice of customer. The last option is switching the brand keeping the store, and has the aforementioned loss in case of sales as well as store loyalty.

Now, as retailers, our job is to find out the factors that impact these choices of customers and if that factors could help retailers in better management of the situation, retailers would derive huge benefits. With this is mind, we created a survey to see if certain factors (which were identified from various literature reviews and that were controllable and manageable by retailers) were important in affecting the customer’s purchase decision:-

a)         Gender

b)         Promotion offers 

c)         Time, Day and Place of shopping

At first, it was to find if the type of customer has a bearing on his or her decision in out of stock situation. With this in mind, the variables taken included gender of the customer. If it could be recognised that the type of gender has an effect on consumer decision, the retailer can analyse his store characteristics as to what type and segment of customers it serve and can accordingly take decisions.

Another factor taken into account was the condition of prevailing promotion offers, it used was to understand the behaviour of customer if he or she is buying a particular product of a particular brand in the background of some promotional offers. If it is established that a customer tends to get annoyed when he/she does not found a product under promotional offer at a store and he/she tends to change to other stores, then, the retailer can take particular care of the promotional offers.

We also considered factors such as, time, shopping point, gender, day of shopping, frequency of shopping, time constrained situation, days with offers. These factors were also taken keeping in mind results of various prior studies conducted for similar situations. It is obvious that a customer shopping at a big mall will not be able to switch as often as that in any mom and pop store. A person shopping on a week day may not react the same way as a person coming on weekends. Similarly, the timing of the shopping might have a relation with the decision taken, for example a person shopping in morning is more refreshed and is less susceptible to feel annoyed in case of an out of stock situation and thus might not switch to other store so easily.