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Research Details

The Long Run Cost of Backorder Delays: a Quasi-experimental Design Approach

Abstract

When an item is temporarily out of stock, it is common practice for a retailer to inform consumers that the item can be purchased, but shipping is delayed. This is referred to as a backorder. Measuring the impact of backorders on future customer purchase behavior is critical for customer relationship management but challenging due to endogeneity: the best customers are most likely to experience backorders. In this paper, we develop a quasi-experimental approach to measure the effect of a backorder. We show that experiencing a backorder leads to a 2.2% decrease in customer orders the subsequent year. We show that the impact of backorders is moderated by shipping delay. For example, among customers who experience a shipping delay beyond 20 days, there is an 8.4% reduction in orders the subsequent year; this negative effect persists for four years (- 7%). Attempts to mitigate the negative effect of backorders by varying the quoted shipping date had little measurable impact.

Type

Working Paper

Author(s)

Eric T. Anderson, Zack Bhan

Date Published

2019

Citations

Anderson, T. Eric, and Zack Bhan. 2019. The Long Run Cost of Backorder Delays: a Quasi-experimental Design Approach.

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