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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2024 Grand Challenge: Business Resilience
Market-Based Solutions to Vital Economic Issues
May 19, 2024

EXPRESS: Impact of Inventory Levels and Product Variety on Consumers’ Perceptions of Brands


Past research in operations management and marketing on inventory levels and product variety has predominantly focused on their effects on brand performance indicators, such as sales and market share, while overlooking the influence on consumers’ perceptions of brands. Brand perceptions, encompassing reputation, quality, credibility, and emotional associations, go beyond typical revenue metrics and offer foresight into a brand’s future performance. Hence, understanding the effects of inventory and product variety on brand perceptions is crucial, and that constitutes the main contribution of this paper. Through a consumer-facing automobile search platform, we collect data on new cars’ inventories of more than 20,000 dealerships in the United States from August 2020 to March 2021. We measure brand perceptions using 273,991 responses by in-market consumers collected by YouGov. To address endogeneity concerns, we model the effects of inventory and variety on perceived brand strength using three different empirical approaches: 1) high-dimensional fixed effects, 2) instrumental variables, and 3) causal forest. Across all analyses, we find that inventory has a positive effect on perceived brand strength but the main effect of product variety is not significant. Our second contribution is related to the fact that past research on inventory and variety does not, for the most part, investigate systematic heterogeneity due to brand- or consumer-specific factors that impact the effectiveness of inventory or variety; to help fill this gap in the literature, we investigate the role of two important and theoretically motivated moderators: consumer income and luxury status of the brand. We find that consumers’ income levels and brands’ luxury status negatively (positively) moderate the effects of product inventory (variety) on perceived brand strength. Our results have managerial implications for effective assortment planning under scarcity, determining the right range of product offerings for luxury versus non-luxury brands, optimizing the customer’s online browsing experience, and targeting advertisements based on brand and consumer characteristics.

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