Consumer forums impact online sales in a flash

New research shows how retailers can better manage short promotions, and compete with the likes of Amazon, even when they are smaller and may not have access to cutting-edge predictive analytics.

More and more online retailers are incorporating flash sales into their business and marketing strategies — generating consumer excitement (sometimes frenzy) by offering a great deal at a low price for a limited time until the supply runs out. For example, since 2015, Amazon’s most successful single day is its record-breaking “Prime Day,” selling millions of products totaling more than $1 billion in flash sales.

This increasingly popular selling strategy led Professor of Supply Chain Management Elliott Rabinovich and Annibal Sodero of the University of Arkansas, to wonder how retailers can better manage flash sales, and compete with the likes of Amazon, even when they are smaller and may not have access to cutting-edge predictive analytics.

Their study, titled “Demand and Revenue Management of Deteriorating Inventory on the Internet: An Empirical Study of Flash Sales Markets (FSM),” appeared in the Journal of Business Logistics and shares some interesting findings.

The supply and demand see-saw

The flash environment requires a unique balancing act on the part of retailers between supply and demand. When the price is set too low, the product can sell out too quickly, disappointing and even upsetting customers, potentially damaging the brand. On the other hand, if the price is set too high, not enough product gets sold within the allotted time frame, and the company can incur losses on overstocking.

“The flash sales are exciting arenas for matching supply and demand because it’s often challenging for a company to strike the right balance and predict sales performance,” says Sodero, who is an assistant professor in supply chain management at the Walton College of Business and earned his PhD in business administration from ASU.

What surprised us most about the study was empirical evidence that consumer forum posts online during a flash sale can influence the selling outcome. This is something that hasn’t been formally studied or quantified.

— Elliott Rabinovich, professor of supply chain management

Consumers in real-time community

Today’s flash-sale shoppers aren’t just opportunists hunting down deals. They are also members of a community of like-minded consumers. During flash sales, they express their opinions in online forums and share information about the product, pricing, or overall value. In this communal space, they have ample room to champion or disparage a deal in real time, which can rapidly affect its sales performance.

“One of our goals of this study was to understand how consumers influence each other during sales events,” Rabinovich explains. “Typically, a customer makes fairly independent decisions and doesn’t interact with other shoppers, except for reading product reviews. But in flash sales, there is constant interaction through the forums, which enables consumers to learn about the quality of the deal.”

Social interaction is unique in our studies. If people start to engage in discussion about the sale, they may say things like, ‘It’s cheaper elsewhere’ or ‘This is a great deal,’ and these comments can be very influential.

— Annibal Sodero, assistant professor of supply chain management at the Walton College of Business at the University of Arkansas

The study suggests that retailers who remain nimble and actively monitor commentary in online forums during a flash sale can achieve better results by adjusting their offer in real-time to satisfy the consumer. Key behaviors include observation, listening, and adaptability throughout the sales event.

While studying these flash sales dynamics, Sodero and Rabinovich developed an innovative model that would enable retailers to predict demand more accurately and manage inventory before, during, and after a sales event.

A beautiful data set

The eight-year study initially set out to address the key challenge of flash sales markets: appropriately balancing supply and demand for online, time-limited deals. It focused on computer parts, which are targeted primarily to a male consumer audience.

“We were lucky to partner with an online retailer who had been making flash sales for more than seven years and had a huge amount of data,” says Sodero. “So, we had a beautiful data set starting out.”

The breadth of the data made their findings even more compelling.

“The impact of forum interactions plays a significant role in the business outcome,” says Rabinovich. “Customers are more sensitive to online discussions than we had anticipated going into the study.”

As a result of their work, Sodero and Rabinovich developed a unique demand forecasting model for flash sales markets that incorporated the consumer forum sentiments.

“Adding forums to the forecasting model gives you a superior model,” Sodero says. “Price is still dominant, but using conversations to forecast enables you to intervene and modify pricing during the flash sale.”

They then conducted a “survival analysis” that showed how projected demand rates from the forecasting model could predict the actual time to stockout, especially during low price markdowns. The model guides sellers in making decisions a priori, before the deals start, and a posteriori, adjusting pricing as needed to correct any departures from projected demand as the deals run their course.

Large and small companies should take heed

Findings from this study will benefit both large and small companies in developing forecasts and designing more effective and predictable flash sales. Larger companies, in particular, will likely gain the greater advantage, gathering data from their broader audience set with more populous consumer forums. However, smaller companies can also benefit from listening to what their consumers are sharing.

Key industries that can apply the new model to their flash sales strategy include any online retailers with time-sensitive offerings, including:

• Perishable goods or services
• Apparel
• Electronics
• Service industries
• Hotels
• Airlines

Here are nine core takeaways from the study, according to Rabinovich and Sodero:

1. While retailers still need to focus on price, they should plan to pay more attention to online conversations during flash sales, making sure they don’t upset customers by selling out too fast.
2. Availability of retail is important, and marketing teams should think strategically about selling at the right time, to give consumers an opportunity to consider the deal.
3. Calibrate the deal so it runs at a steady pace, without moving too quickly, so consumers will leave feeling satisfied.
4. Selling out too early will alienate consumers, which are costly to acquire. In the online market, it’s easy for them to go elsewhere.
5. Forums are not just about brand reputation; they are a wealth of information about consumer purchasing behavior.
6. When designing the sale, setting prices, and determining inventory, it pays to follow online consumer forum interactions and use them to adjust pricing during the actual sales event in real time.
7. During the flash sale, if people are expressing high positivity, the deal may sell out too soon. Consider adjusting the price, if it is too low, to avoid running out.
8. During the flash sale, if people are expressing negativity, it will drag down the deal, so consider lowering the price.
9. Collect data during flash sales to analyze to make continual improvements for future sales events.

The next phase of Sodero and Rabinovich’s research will involve a more extensive exploration of the nature of consumer relationships in forum settings, and how early shoppers may influence flash sales.

“People are addicted to flash sales,” says Sodero. “They can interact socially in forums, chat as part of a community, and share personal perspectives. So, companies need to consider these online social dynamics when marketing for flash sales. It’s not always just about getting a good deal at a low price. It’s also about the consumer having a good time in the process.”