Holiday Season Risks: Manipulated Inventory

This holiday season presents new challenges to merchants who want to deliver an exceptional customer experience. In 2020, an exceptional experience is often a new experience–delivered through new channels or under new pressures–and risk is always in the fine print. To increase eCommerce revenue and customer loyalty, merchants must successfully manage risk in five key areas: inventory, new channels, chargebacks, customer accounts, and customer friction.

First on this year’s holiday checklist: inventory. As more consumers turn to eCommerce than ever before, managing inventory, including preventing bots from snatching up flash sales, is key to success. Customers want to be able to add that great deal to their cart—and checkout and receive the item without delay.

Retailers Are Watching Inventory This Holiday Season

Controlling inventory seems simple enough, but it’s a challenge at the scale eCommerce volumes in 2020. In a new Kount survey of 500 eCommerce merchants, 59% of companies reported their employer is planning on redirecting more resources and/or manpower toward preventing inventory issues. And, more than half (56%) anticipate inventory issues related to having items in stock and shipping items in a timely manner this year.

Proper inventory controls ensure that there is enough product to meet customer demand. They allow merchants to manage inventory, to accurately assess product availability for customers in both digital storefronts and shopping carts, and to maintain promotional agreements with suppliers.

Common Inventory Bot Attacks

Retail Arbitrage

How It Happens: Malicious bots allow a single buyer to purchase large quantities of discounted items in order to resell them on a different marketplace for a profit. This practice is similar to reselling but more dangerous because sophisticated technology automates the entire process to achieve scale and speed.

The Damage: Retail arbitrage can quickly undercut revenues and profits, draining inventory and stealing discount-conscious customers away. In addition, the price differences and poor customer experiences delivered by some resellers can reflect negatively on the brand.

Inventory Depletion

How It Happens: A single buyer, typically aided by bots, purchases a large quantity of inventory intended for many consumers.

The Damage: For businesses, inventory depletion can wreak havoc on their logistical capabilities by preventing them from serving their intended markets. It can also put businesses in violation of promotional agreements with suppliers. For customers, the lack of product availability can push them to seek out another source and damage their impression of the brand.

More than 1 in 4, or 29%, of participants say their organization/business has dealt with a bot attack or inventory manipulation in the past

Denial of Inventory

 

How It Happens: Bad actors use bots to fill many carts with hard-to-get items, reducing inventory and preventing legitimate purchases. They then do a coordinated abandonment of the cart and purchase the freed inventory. 

The Damage: Similar to inventory depletion, denial of inventory can create logistical problems, frustrate customers, and increase shipping and delivery dates and costs.

Fraudulent Purchases

How It Happens: An individual purchases a product with stolen payment information or with the intent to recoup their money by issuing a fraudulent chargeback.

The Damage: In addition to chargeback costs, fraudulent purchases can result in a direct loss of inventory if the card information is stolen or if the buyer requests a duplicate product after fraudulently reporting the original purchase as damaged or undelivered.

Did You Know? Up to 50% of internet traffic is generated by bots. Basic bots, including search engine crawlers, gather data and can be helpful to a business, malicious bots can masquerade as site visitors to disrupt commerce.

Detecting Bots and Preventing Fraud

The ability to detect and classify bot activity enables companies to stop malicious bots, allow desirable bots, and adapt their response towards new or questionable bots to protect customers and commerce at every point in the customer journey.

Sophisticated fraud is difficult to detect and targets multiple points of weakness. A modern approach to fraud protection is built on a core set of three elements that depend on each other to effectively identify and stop fraud. Advanced fraud protection also looks beyond fraud, allowing companies to mine for insights that can be used to improve products and marketing.

  1. AI & Machine Learning. AI is the nervous system in a fraud protection solution, connecting data and information from machine learning to coordinate a real-time response. Unsupervised Machine Learning technology detects and stops emerging fraud attacks in real-time, while Supervised Machine Learning looks for signals that have predicted fraud in the past to quickly identify trusted transactions. Effective AI combines both types of machine learning.
  2. Data Network. An extensive data network of trust and risk signals across verticals, geographies, and billions of transactions annually can deliver insight into the trust level of a shopper’s digital identity, and improve decisioning accuracy to prevent fraud and reduce false positives.
  3. All-in-One Platform. The most effective fraud protection strategy covers the entire customer journey. By delivering multiple types of fraud protection through a single platform, businesses can use comprehensive analytics to fine tune policies and rules, while the solution’s AI can seamlessly coordinate robust protection from account creation and login through payments and disputes.

The Five Risks of eCommerce This Holiday Season

 Inventory is one risk, but there are four more—and just like St. Nick, eCommerce companies need to make their list and check it twice. Get Kount’s latest eBook to learn the risks to monitor this holiday season, and get the checklist of effective fraud prevention to ensure you are prepared: kount.com/holiday

 

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