A Customer Perspective on Product Eliminations: How the Removal of Products Affects Customers and Business Relationships

Regardless of the apparent need for product eliminations, many managers hesitate to act as they fear deleterious effects on customer satisfaction and loyalty. Other managers do carry out product eliminations, but often fail to consider the consequences for customers and business relationships. Given the relevance and problems of product eliminations, research on this topic in general and on the consequences for customers and business relationships in particular is surprisingly scarce. Therefore, this empirical study explores how and to what extent the elimination of a product negatively affects customers and business relationships. Results indicate that eliminating a product may result in severe economic and psychological costs to customers, thereby seriously decreasing customer satisfaction and loyalty. This paper also shows that these costs are not exogenous in nature. Instead, depending on the characteristics of the eliminated product these costs are found to be more or less strongly driven by a company’s behavior when implementing the elimination at the customer interface

A Note on Risk-Aversion of Informed Newsvendors

The order behavior of newsvendors has been extensively analyzed in the behavioral operations literature and a robust observation is that average order quantities are between expected-profit-maximizing quantities and mean demand. This “pull-to-center” effect has been explained by anchoring, demand-chasing, inventory error minimization, and other decision heuristics and biases. Risk preferences have been ruled out as an explanation of order behavior, which we believe might have been premature. Risk preferences vary between people and understanding the effect of risk preferences on orders requires an analysis on the individual level and not only on the group level, which is the dominant approach in the literature. In a controlled laboratory experiment, we measure individual risk preferences and analyze how they relate to order quantities. We find a significant correlation between individual risk preferences and order quantities, which indicates that risk preferences affect order behavior. We also test how information about the effect of order quantities on the profit distribution affects ordering and find only a marginal moderation effect indicating that basic information are sufficient to act according to risk preferences. Furthermore, our analyzes show no mediation effect of risk preferences by gender, but a significant level effect of gender: female anchor more on mean demand

Behavioral inventory decisions: The newsvendor and other inventory settings

We summarize the literature on human decision-making in the newsvendor model. In the newsvendor model, a decision maker faces stochastic demand and must determine the order quantity. Consistent findings in the literature are that people choose order quantities that are between expected-profit-maximizing quantities and mean demand and that they vary over time. We discuss how deviations of people’s orders from the expected-profit-maximizing quantities can be explained by decision biases and alternative utility functions. We also discuss how heterogeneity among people can explain between-subject variety, present alternative behavioral models, and identify potential areas for future research