Understanding the short-term impact of product discontinuations on consumer response behaviour
Retailers as well as manufacturers can suffer substantial revenue losses as a result of product discontinuations. The magnitude of this sales loss is dependent on how the consumer responds, which in turn is affected by various product and consumer factors. To date empirical research on consumer responses to product unavailability has focussed on out-of-stocks and to a lesser extent permanent assortment reductions implemented by the retailer. A critical area that has not been explored to date is that of examining consumer responses to manufacturer product discontinuations and how those responses will affect product category sales.
Drawing on insights from past empirical research on product unavailability, this original research investigates the short-term impact of three different types of product discontinuation on the shoppers’ switching behaviour and on sales within the product category. The research also examines whether varying purchase levels of the preferred discontinued product moderates the switching behaviour. Several propositions are developed and tested using scanner data collected from Flybuys’ customers across three product categories and 48 New World stores within the Auckland region.
Results from the study indicate that although the dominant switching behaviour to a preferred-product discontinuation is to substitute within the product category, both the retailer and the manufacturer experience short-term sales losses. Findings suggest that prior purchasers of the discontinued product do not spend as much in the product category in the three month period following the discontinuation. Furthermore; shoppers are more likely to substitute with products that have similar attributes in terms of flavour, form or benefit and this switching behaviour is moderated by varying purchase levels of the discontinued product.
The findings suggest that retailers should be cautious in assuming that shoppers will continue to spend the same amount on a substitute item after the discontinuation and should ensure there are a number of acceptable alternatives available on shelf. The results further suggest that the retailer may wish to explicitly signal the products with similar attributes to heavy purchasers of the discontinued product to help mitigate sales losses. By empirically investigating consumers’ responses to preferred-product discontinuations this study adds to the body of knowledge in the area of consumer responses to product unavailability. Finally, a number of limitations are discussed and suggestions made for future research.