Service Failure Recovery and Prevention: Managing Stockouts in Distribution Channels

Yan Dong (), Kefeng Xu (), Tony Haitao Cui () and Yuliang Yao ()
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Yan Dong: Darla Moore School of Business, University of South Carolina, Columbia, South Carolina 29208
Kefeng Xu: College of Business, University of Texas at San Antonio, San Antonio, Texas 78249
Tony Haitao Cui: Carlson School of Management, University of Minnesota, Minneapolis, Minnesota 55455
Yuliang Yao: College of Business and Economics, Lehigh University, Bethlehem, Pennsylvania 18015

Marketing Science, 2015, vol. 34, issue 5, 689-701

Abstract: In managing service failures such as stockouts, most research has emphasized preventive mechanisms, whereas stockout recovery mechanisms have been largely ignored. We propose and examine a failure-recovery mechanism (i.e., contractual stockout recovery) in the presence of demand uncertainty and compare it with failure-prevention mechanisms in a dyadic distribution channel.We find that stockout recovery mechanisms can improve channel profitability under certain conditions. More importantly, we find that stockout recovery may outperform stockout prevention mechanisms such as return policy and vendor managed inventory in improving manufacturer and channel profitability. This is because stockout recovery reduces channel-wide stockout risks and allows benefits from the reduced risks to be shared between the manufacturer and the retailer, helping alleviate double marginalization. Although return policy also reduces stockout risks, it does so by increasing inventory risks in the channel without reducing channel exposure to demand uncertainty. Thus, our research suggests that stockout recovery can be an effective alternative in managing stockouts to those common methods of stockout prevention mechanisms.

Keywords: service failure prevention and recovery; stockouts; distribution channel governance (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:34:y:2015:i:5:p:689-701

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