Management Science and Information Systems' Seminar（2017-07）

Topic: The Implications of Inventory Scarcity Messages Online: Sales Rates and Replenishment Quantities

Speaker: Rui Yin, W. P. Carey School of Business, Arizona State University

Time: Friday, June 16, 14:00-15:30 p.m

Place: Room 217, Guanghua Building 2

Abstract:

The diffusion of e-commerce and its low search costs across markets involving durable consumer goods has stimulated retailers to develop different sales mechanisms to urge consumers to stop searching and start purchasing. Besides deep markdowns or flash sales, some retailers have chosen to post scarcity messages on product webpages to alert potential consumers that there are only a few units left in inventory. It is not clear, however, how effective the posting of these messages is in promoting sales and, if so, how retailers can leverage these messages to improve their earnings. By collecting real-time data associated with 7,122 observations at an online retailer over an 18-month period, we first examine empirically the impact of disclosing inventory scarcity messages on inter-purchase times (i.e., the time between consecutive sales transactions) across products. Our results suggest that inter-purchase times can decrease by an average of 9.1% after the posting of inventory scarcity messages. This implies that a firm can increase its sales rates by posting scarcity messages when inventory drops below a certain threshold. By using this empirical result as a modeling assumption, we develop an inventory replenishment model to quantify the economic benefit of posting inventory scarcity messages. Our analytical result implies that, by posting scarcity messages, the firm can increase its earnings. Moreover, the firm can earn even more by lowering its replenishment order quantity. We also find that the economic value created by scarcity messages is always higher than the economic value generated by lowering the replenishment order quantity.

Introduction:

Rui Yin is an Associate Professor in the Department of Supply Chain Management in the W.P. Carey School of Business at Arizona State University. She received her PhD in operations management from UCLA Anderson School of Management, M.Sc. in mathematics from the National University of Singapore, and B.Sc. in mathematics from Peking University. Her research focuses on downstream demand management issues in retail operations, such as pricing, inventory management and consume behavior; as well as upstream supply management issues such as sourcing and procurement strategies for firms to manage their multi-tier supply chains. She has published research papers in Management Science, Production and Operations Management, Decision Sciences, European Journal of Operational Research, and International Journal of Production Economics.

Your participation is warmly welcomed!