Customer reactions in Out-of-Stock situations: Do promotion-induced phantom positions alleviate the similarity substitution hypothsis?

Out-of-Stock (OOS) is a prevalent problem customers face at the POS. In this paper, we demonstrate both theoretically and empirically how OOS-induced substitution patterns can be explained and predicted by means of context and phantom theory. We further analyze the relevance of promotions, for which OOS is most pronounced, as essential driver of differences in customers' OOS reactions. The results of an online experiment demonstrate that customers substitute unavailable items in accordance to a negative similarity effect which is reduced, however, for OOS items on promotion. The empirical findings further suggest that customers' OOS responses differ for promoted vs. non-promoted items. We find that customers being affected by a stock-out of promotional products significantly more often postpone purchases and tend to avoid substitution resulting in severe losses for the retailer. However, for non-promoted items, customers easily switch to alternative brands. That way, manufacturers lose profit and possibly loyal customers.