Effects Of Substitution Policy In Online Grocery Retailing
Sep 10, 2023 | Varun Gopi
In recent years, online grocery shopping has become increasingly popular, offering convenience and a wide variety of products to consumers. However, post-purchase out-of-stock (PP-OOS) events are common in online grocery retailing, where products that were available at the time of purchase go out of stock by the time the order is dispatched. To address PP-OOS events, online grocery retailers often offer substitutions to customers, providing alternatives for out-of-stock items. This paper investigates the effects of two substitution policies on consumer acceptance in online grocery retailing and explores how these policies vary across different product categories. Challenges of Substitution Policies
Large Assortment and Difficulties in Choosing Appropriate Substitutions
Online grocery retailers face the challenge of selecting suitable substitutions from a vast assortment of products available for each out-of-stock item. The abundance of choices makes it difficult to identify the most appropriate substitute that aligns with customers' preferences.
Leveraging Past Purchase Information
Determining how to leverage consumers' past purchase records to inform substitution decisions poses another challenge. Online retailers need to understand how consumers' previous choices can be used effectively to suggest relevant substitutes.
Objectives
The main objectives of this study
are as follows:
Investigate the effects of two substitution policies on consumer acceptance in online grocery retailing.
Analyze the impact
of category differentiation levels (vertically differentiated and horizontally differentiated categories) on the substitution policy
effects.
Explore the role of brand type (national brand vs. private label)
in influencing substitution acceptance.
Examine the interaction effect between the two substitution policies.
Methodology
The study conducted a computer-simulated purchase experiment
involving over 3,000 households and
five product categories (margarine, cereals, ketchup, pizza, and crisps). Data was collected in two waves, allowing for
a comprehensive analysis of substitution policy effects.
Findings
Effects of Substitution Policies
The study found that the acceptance rate of substitutions varied based on the substitution policies implemented by online grocery retailers. Implementing appropriate substitution policies led to increased acceptance rates across all categories.
Category Differentiation Levels
The impact of substitution policies varied across vertically differentiated (VD) and horizontally differentiated (HD) categories. In VD categories, where products are easy to evaluate and offer a few flavors/types, suggesting a substitution with the same brand was found to be effective. In HD categories, where products are more difficult to evaluate and offer a larger range of flavors/types, suggesting a substitution with the same flavor was more successful.
Brand Type Effect
The study revealed that for HD categories, substitutions with the same flavor from private-label brands were more acceptable to consumers than substitutions from national brands.
Interaction Effect
An interaction effect was observed between consumers' past purchase information and dominant attribute policies. Leveraging past purchase information improved substitution acceptance rates, especially when combined with dominant attribute policies.
Practical Recommendations
Based on the findings, the study provides practical
recommendations for online grocery retailers:
Use consumers' past purchase records to guide the initial selection of substitutions.
In VD categories, always suggest a past purchased item, either of
the same flavor or the same brand.
In HD categories, suggest a past purchased item only if it is of
the same flavor or same brand from
a private-label brand. Otherwise, let the dominant attribute (flavor) determine
the substitution.
In HD categories, use private-label brands for flavor
substitutions unless the out-of-stock item is already a private label,
in which case, offer a national brand with the same flavor.
Conclusion
This study sheds light on the effectiveness of substitution
policies in online grocery retailing and
provides valuable insights for retailers aiming to improve customer acceptance
of substitutions. By implementing
suitable substitution strategies based on category differentiation levels, brand types, and past purchase records,
online grocery retailers can enhance
customer satisfaction and shopping experience in the face of post-purchase out-of-stock events.
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