Inventory Exhaustion: Are your products really out of stock?
For an online retailer, the biggest nightmare is a customer leaving the e-commerce website/app without converting because of inventory manipulation.
Now you must be wondering, how can a business metric manipulate a customer into believing that a particular product is out of stock or not available?
This is where inventory exhaustion comes into the picture. A bot attack may infiltrate your e-commerce business and trick the customer into believing that the product he/she is looking for is out of stock, thereby leading to the loss of a valuable conversion.
This problem is often witnessed in the case of industries where products in limited edition or next-generation products are in short supply due to the rising trend. Gaming consoles and a fresh series of branded sneakers or electronic appliances like earphones are great examples.
Let’s understand how a bot attack can lead to inventory exhaustion.
What is inventory exhaustion?
Inventory exhaustion or inventory manipulation is an online fraud through which a series of bots programmed by competitors or other fraudulent parties may add multiple items to the cart until it goes out of stock. The objective behind this scheme is to deplete the inventory and resell the stock at higher prices.
When a customer logs in and tries searching for the same product in an infected e-commerce app/website, he/she shall not be able to purchase it. Due to the constant unavailability of product(s) on the site, the customer may switch to an alternative option and the business ends up losing its brand value.
There are three techniques of inventory exhaustion prevalent in the industry. Let’s take a look at these in detail.
Techniques of inventory exhaustion
1. Retail arbitrage
In this type of technique, bots or bad actors may purchase large quantities of products which are available in one marketplace at a discounted rate. Post depleting the inventory, they may resell the same inventory in another marketplace at a separate price.
The problem arises when highly sophisticated bots scale up the entire process and deplete the entire inventory as soon as it’s refilled.
2. Inventory depletion
This happens when a single buyer, through a bot attack, may purchase the entire inventory for multiple customers at the same time.
Unlike retail arbitrage, inventory depletion may or may not be undertaken with the objective of reselling. To ensure that a retailer’s inventory cycle is destroyed, inventory depletion can be used to damage the reputation in the eyes of customers resulting in a quick switch between brands.
3. Denial of inventory
Inventory denial is a smart yet cunning technique that takes place when bots fill the carts with a large number of items that are not easily available. Once the said carts are full, a wave of cart abandonments takes place that allows the bad actors executing these attacks to purchase the goods which were initially denied.
Impact of inventory exhaustion on e-tailers
According to a study, 58% of businesses encountered more than 50 bot attacks in 12 months in 2020. And for 25% of those businesses, a single bot attack cost their organization over $500,000. Apart from these fascinating numbers, inventory exhaustion affects an e-commerce business in multiple ways.
1. Logistical issues
The direct impact of faulty inventory exhaustion lies in executing the logistics plan as per the established standards. Depletion of inventory in advance may result in the retailer reordering more than the required quantity which may take time to get refilled.
This exerts pressure on the supply chain which may end up bittering the relations with the suppliers.
2. Loss of revenue
An increase in cart abandonment attacks may lead to a loss of revenue from potential customers. A conversion opportunity, once lost, can never be reclaimed. A lot of time may get wasted in understanding the root cause behind low conversions and until the next action is taken, the customer may have found an alternative already.
Moreover, to ensure that customer retention is partially possible, there is additional expenditure incurred on remarketing campaigns which may not fetch the required results if the fraud remains undetected.
3. Loss of brand value
How many times have you visited a marketplace for purchasing the same product that was earlier out of stock? A negative experience may prevent a customer from visiting the same marketplace. This shows your brand is in a bad shape while your business experiences inventory depletion and retail arbitrage issues for a prolonged period of time.
In addition, increased bot activity may also result in your website crashing which restricts customer access to an assortment of your products and services.
4. Loss of target customers
Online merchants often run campaigns seasonally and during special occasions to attract customers who demand exclusive products available at select marketplaces at discounted prices. A fraud like retail arbitrage may result in such customers switching to a competitive brand due to the absence of discounted products arising from inventory exhaustion.
