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Why are the inventory estimates of shoppers so biased? Reference, size, and salience biases in household inventory estimations (RV 2005/47/MKT)

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Biases in estimating the level of product inventory in one's household can lead to overstocking and waste or to stockouts and unfulfilled demand. To understand the origin of these biases, the authors develop a psychophysical model of inventory estimation. This model argues that consumers anchor their estimations on their average inventory and that adjustments from the anchor follow an inelastic power function, leading to overestimations of low levels of inventory and underestimations of high levels. Two laboratory experiments and two field studies involving 29 product categories confirm this, and show that inventory estimates are less accurate for product categories that are bought on impulse, difficult to stockpile, and that have a low promotional elasticity. Importantly, the results also show that it is inventory estimates - not actual inventory levels - that drive subsequent purchase incidence. In a final simulation, the authors examine the implications for consumers (in terms of waste and unfulfilled demand) and for retailers (in terms of promotion targeting) of their finding that inventory estimation biases are driven by perceptual factors and not fear of overstocking or of stockouts.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2005/2005-77.pdf

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Copyright INSEAD. All rights reserved