The impact of disclosing inventory‐scarcity messages on sales in online retailing

TLDR

Online retailers post scarcity messages such as “5 units or less left” to signal impending stockouts, providing only an upper bound on inventory levels. The study aims to examine how these scarcity messages affect sales of durable goods. Researchers collected price and sales data from an online retailer before and after posting the messages across multiple inventory‑replenishment cycles to empirically assess the effect. Scarcity messages reduced daily sales by an average of 17.6%, whereas a 1 % price discount increased sales by about 3 %, indicating that price reductions are a more effective tool for boosting inventory turns.

Abstract

Abstract To influence demand, some online retailers post messages (e.g., “5 units or less left in stock”) on their product pages to signal impending stockouts. These “scarcity” messages provide consumers “partial” inventory information, revealing only an upper bound on the number of units available for sale. To examine the impact of these messages, we obtained price and sales data from an online‐retailer website across a sample of durable goods before and after the retailer posted the messages over multiple inventory‐replenishment cycles. We then used these data to assess empirically the effect of these messages on these products' daily sales. We find that disclosing these messages can decrease daily sales by an average of 17.60%. This finding suggests that scarcity messages such as these can have a negative influence on the sales prospects of durable goods. We also observe, on the other hand, that price discounts are quite effective in increasing sales and offsetting the losses induced by scarcity messages. On average, a reduction of 1% in stock keeping unit price increases daily sales by approximately 3%. Therefore, relative to disclosing scarcity messages, price discounts are a much more effective tool at increasing inventory turns.