Consumer forums affect online sales in a flash

More and more online retailers are incorporating flash sales into their business and marketing strategies, generating customer excitement by offering a great deal at a low price for a limited time until the supply runs out.

More and more online retailers are incorporating flash sales into their business and marketing strategies, generating consumer excitement 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’re 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 reports many interesting findings.

The supply and demand seesaw

For retailers, the flash environment requires a unique balancing act 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.

“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,” says Rabinovich.

“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,” adds Sodero, who is an assistant professor in supply chain management at the Walton College of Business and earned his PhD in business administration from the W. P. Carey School.

Consumers in real-time community

Today’s flash-sale shoppers aren’t just opportunists hunting down deals; they’re 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 these communal spaces, they have ample room to champion or disparage a deal in real time, which can rapidly affect its sales performance.

“Typically, a customer makes fairly independent decisions and doesn’t interact with other shoppers, except for reading product reviews,” Rabinovich explains. “But in flash sales, there is constant interaction through the forums, which enables consumers to learn about the quality of the deal.”

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.

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

When the price is right

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. They partnered with an online retailer that had been making flash sales for more than seven years and had a huge amount of data.

They found price is still dominant, but using conversations to forecast enables retailers to intervene and modify pricing during the flash sale.

They also 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 adjustments in pricing as needed to correct any departures from projected demand as the deals run their course.

Core takeaways

1. While retailers still need to focus on price, they should pay more attention to online conversations during flash sales, making sure they don’t sell 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, so consumers will leave feeling satisfied.
4. Selling out too early will alienate consumers, who 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 also offer 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.

Findings will benefit both large and small companies in developing forecasts and designing more effective and predictable flash sales. Larger companies 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 consumer comments.

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, and airlines.