Leasing or selling? The channel choice of durable goods manufacturer considering consumers’ capital constraint

Abstract

In this paper, we explore how a monopoly manufacturer chooses the market strategies and decides the optimal price to obtain maximum profit. We divide the market into the C-type market and the N-type market, and analyze the profitability of the monopoly manufacturer who takes the pure-selling, pure-leasing and hybrid strategy respectively, considering consumers' capital constraint and the life span of the durable goods in an indefinite time horizon model. ( 1) We find that a larger proportion of the consumers with capital constraint has a more significant impact on the prices and it could slow down the development of the rental market. When the scale of the group attains up to a threshold level, it would greatly influence the customers' demand and their marketing strategy, and encourages more manufacturers to take the leasing strategy. (2) In the Hybrid Strategy, we see explicit growth in the overall profit with both the leasing channel and the selling channel working together, although the former outperforms the latter. The suppressed selling channel, in fact, has to lower the price to keep the market coverage, with an independent market structure. (3) Finally, we find that a leasing agent may help the manufacturer at first and then become a tough competitor. These findings provide new insights for the operation of large construction machinery manufacturing companies. subject classification numbers as needed.

How Does the Electronic Products Retailer Transform Operational Modes Considering Consumer Preferences for Leasing?

“…Consumers value the leased product as αv, and α(α ≥ 0) is used to denote consumer preferences for leasing. A similar assumption can be seen in recent studies of product leasing [3][4][5].…”

“…Consumers may have financial limitations and are sensitive to products' prices. e model established by Li et al discussed this issue and found that manufacturers offer products to consumers at low prices through leasing, which expands the market coverage and creates price discrimination [4]. Gilbert et al [5] analyzed how per-use rentals and sales differentiate consumers within the framework of a hybrid selling-leasing model.…”

“…In addition, the repeated use of leased products results in vertical differences in the quality of sold products. Li et al [4] distinguished between sold products and leased products by describing that the product for leasing is devalued compared to the unused one and the degree of condition differentiation between products for leasing and unused products for selling occurring as an exogenous variable.…”

Modeling and data analytics in manufacturing and supply chain operations

“…The second paper by Li et al (2021) considers leasing and selling strategies of a monopoly manufacturer of durable goods. In this paper, a model with two differentiated markets is built, and three basic market strategies are examined, including a pure-selling strategy, a pure-leasing strategy, and a hybrid strategy.…”

“…The analytical methods used in these papers include predictive analytics, optimization, simulation, as well as hybrid methods. Two papers focus on supply chain problems, one on information sharing by Dominguez et al (2021) and one on leasing and selling strategies by Li et al (2021)). Two papers consider scheduling and dispatching problems in manufacturing, one in flexible manufacturing by Zanchettin (2021) and one on lean manufacturing by Mezzogori et al (2021).…”