Abstract
In this paper, we quantify the effect that product stock-outs led consumer dissatisfactions have on consumer behavior. We (a) develop and calibrate a mathematical model that can track how an individual consumer's dissatisfaction evolves over time on account of one or more experiences of stock-outs during shopping trips to a retail store, (b) link the measure of dissatisfaction to the probabilities of various consumer actions such as substitution, postponement, and abandonment, and (c) aggregate the individual level models to yield a measure of the backorder costs of various products for the retailer. The study yields a practical solution that retailers could use to determine how a consumer is likely to respond to a stock-out situation and hence be proactive in relationship management. It also helps retailers in assortment planning.
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