Scale Purchase Restrictions During Shortages

Widespread shortages differ from normal stockouts both in the cause and in the optimal retailer responses. Normal stockouts result from the store’s inventory management strategy, such as to minimize carrying costs for unsold merchandise. Optimal responses include easing shopper irritation at the out-of-stock and improving inventory practices. On the other hand, widespread shortages result from unanticipated events which disrupt entire supply chains and/or explosively escalate demand. An optimal response might include limiting the quantity of an item each customer is allowed to buy.
     Researchers at UNSW Sydney and University of Florida developed a statistical model to generate recommendations for a retailer using purchase quantity restrictions during a widespread shortage. The model takes account of store size, shortage severity, sales channel competition, and seasonality. It also attends to how shoppers’ search stimulated by scarcity of a product can increase store traffic, which builds sales of items there not in short supply.
     The recommendations: 

• For moderate shortages, large multiproduct stores, where shopping basket sizes are large, should maintain low prices and impose purchase quantity limits. 
• For moderate shortages, small stores carrying a limited line of products should increase prices and not impose limits. 
• For severe shortages, large stores should keep low prices and not impose limits. 
• For severe shortages, small stores should increase prices and impose limits.

     The criterion here is what’s most financially profitable for the retailer. That’s valuable because the same disruption which causes widespread shortages can threaten the profit margins of a retailer. If the retailer goes under, the community is deprived of a source of supply.
     Limiting purchase quantities following natural disasters or in anticipation of severe supply chain disruptions also can serve the community by reducing hoarding of scarce items. Retailers shrink from raising prices substantially at times of disaster because they fear public outrage would follow. Can you curb hoarding in ways stakeholders would accept?
     Might it work to state the case to shoppers and urge shoppers to buy no more than what they’ll need for the near future? My experience and expertise indicate that, for many consumers, the effects of such an appeal constitute a case of reverse psychology: A retailer telling shoppers not to buy is unusual enough to lead to pushback. “It’s a free country! Nobody’s telling me I can’t buy as much as I want!”
     Raising prices while announcing you’ll give the extra to disaster relief, for instance, can work, though.

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Turn Out-of-Stocks to Your Advantage 

Decide Whether to Limit Purchase Quantities 

Curb Hoarding 

Multiply Sales via Multiple-Quantity Discounts