Markdown Pricing with Unknown Fraction of Strategic Customers

Mersereau, Adam J.; Zhang, Dan

doi:10.1287/msom.1120.0376

Cited by 100 publications

(56 citation statements)

References 45 publications

(54 reference statements)

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“…pricing (e.g., Aviv and Pazgal 2008, Cachon and Feldman 2013, Mersereau and Zhang 2012, Su 2007. Apart from pricing, the effects of strategic consumer behavior also extend to a range of other operational decisions; examples include decisions pertaining to stocking quantities (Liu and van Ryzin 2008), inventory display formats (Yin et al 2009), the implementation of quick-response and fast-fashion practices Swinney 2009, 2011), the timing of new product launches (Besbes and Lobel 2013), and the employment of advance selling (YU et al 2013a), to name but a few.…”

Section: Introductionmentioning

confidence: 99%

Dynamic Pricing in the Presence of Social Learning and Strategic Consumers

2017

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When a product of uncertain quality is first introduced, consumers may be enticed to strategically delay their purchasing decisions in anticipation of the product reviews of their peers. This paper investigates how the presence of social learning interacts with the adoption decisions of strategic consumers and the dynamicpricing decisions of a monopolist firm, within a simple two-period model. When the firm commits to a price path ex ante (pre-announced pricing), we show that the presence of social learning increases the firm's ex ante expected profit, despite the fact that it exacerbates consumers' tendency to strategically delay their purchase. As opposed to following a price-skimming policy which is always optimal in the absence of social learning, we find that, for most model parameters, the firm will announce an increasing price plan. When the firm does not commit to a price path ex ante (responsive pricing), interestingly, the presence of social learning has no effect on strategic purchasing delays. Under this pricing regime, social learning remains beneficial for the firm and prices may either rise or decline over time, with the latter being ex ante more likely.Furthermore, we illustrate that contrary to results reported in existing literature, in settings characterized by social learning, price-commitment is generally not beneficial for a firm facing strategic consumers.

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Section: Introductionmentioning

confidence: 99%

Dynamic Pricing in the Presence of Social Learning and Strategic Consumers

2017

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“…This paper also adds to the growing literature on strategic customer behavior in retail management. This literature mostly focuses on dynamic pricing strategies when consumers strategically wait for potential price discounts in the future (Su, 2007;Aviv and Pazgal, 2008); more recent work has incorporated competition (Levin et al, 2009), binding reservations Osadchiy and Vulcano (2010), opaque selling (Jerath et al, 2010), demand learning (Mersereau and Zhang, 2012), social learning (Papanastasiou and Savva, 2014), and cyclic pricing (Besbes and Lobel, 2015). Another stream of literature focuses on the impact of different operational strategies when consumers strategically wait for discounts: e.g., capacity rationing (Liu and van Ryzin, 2008), supply chain contracting (Su and Zhang, 2008), quick response (Cachon and Swinney, 2009;Swinney, 2011), and product launches (Liang et al, 2014;Lobel et al, 2014).…”

Section: Literature Reviewmentioning

confidence: 99%

Online and Offline Information for Omnichannel Retailing

Gao

2016

SSRN Journal

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This paper studies how retailers can effectively deliver online and offline information to omnichannel consumers who strategically choose whether to gather information online or offline and whether to buy products online or offline. Information resolves two types of uncertainty: product value uncertainty (i.e., consumers realize valuations when they inspect the product in store, but may end up returning the product when they purchase online) and availability uncertainty (i.e., store visits are futile when consumers encounter stockouts). We consider three information mechanisms: physical showrooms allow consumers to learn valuations anytime they visit the store, even during stockouts; virtual showrooms give consumers online access to an imperfect signal of their valuations; availability information provides real-time information about whether the store has a product in stock. Our main results follow. First, physical showrooms may prompt retailers to reduce store inventory, which increases availability risk and discourages store patronage. Second, virtual showrooms may increase online returns and hurt profits, if they induce excessive customer migration from store to online channels. Third, availability information may be redundant when availability risk is low and may render physical showrooms ineffective when implemented jointly. Finally, when customers are homogeneous, these mechanisms may not exhibit significant complementarities and the optimal information structure may involve choosing only one of the three. Electronic copy available at: http://ssrn.com/abstract=2796566 Online and Offline Information for Omnichannel Retailing Fei GaoThe Wharton School, University of Pennsylvania, Philadelphia, PA, 19104 feigao@wharton.upenn.edu Xuanming SuThe Wharton School, University of Pennsylvania, Philadelphia, PA, 19104 xuanming@wharton.upenn.edu AbstractThis paper studies how retailers can effectively deliver online and offline information to omnichannel consumers who strategically choose whether to gather information online/offline and whether to buy products online/offline. Information resolves two types of uncertainty: product value uncertainty (i.e., consumers realize valuations when they inspect the product in store, but may end up returning the product when they purchase online) and availability uncertainty (i.e., store visits are futile when consumers encounter stockouts). We consider three information mechanisms: physical showrooms allow consumers to learn valuations anytime they visit the store, even during stockouts; virtual showrooms give consumers online access to an imperfect signal of their valuations; availability information provides real-time information about whether the store is in stock. Our main results follow. First, physical showrooms may prompt retailers to reduce store inventory, which increases availability risk and discourages store patronage.Second, virtual showrooms may increase online returns and hurt profits, if they induce excessive customer migration from store to online channe...

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“…In the existing literature, most MMP related studies focus on the optimal markdown strategy with a dynamic pricing scheme during the selling season, in which the markdown pricing depends on the inventory level and market demand forecasting (e.g., [13][14][15]). However, it is important to study MMP from the supply chain perspective.…”

Section: Literature Reviewmentioning

confidence: 99%

“…The strategy of markdown pricing from the retailer perspective has attracted considerable attention in the supply chain management literature in recent years (e.g., [13][14][15][16]). Although MMP is popularly examined in the theoretical supply chain analysis, its adoption and implication in specific industrial context are under-studied.…”

Section: Introductionmentioning

confidence: 99%

Enhancing Economic Sustainability by Markdown Money Supply Contracts in the Fashion Industry: China vs U.S.A.

Shen

Choi

2015

Sustainability

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Supply chain contracts, such as the markdown money policy (MMP), are commonly adopted in the fashion industry. In this paper, we explore how fashion companies can use MMP to enhance economic sustainability from the cross-cultural perspective. We conduct case studies on two fashion firms (suppliers), one from China and one from U.S.A., that are adopting MMP in their respective supply chains. Via semi-structured interviews with staff members and some public data searching of the target companies, we find that the cultural factors, such as power distance and collectivism/individualism, affect contract selection, contract management, supplier-retailer leadership, and supplier-retailer relationship. We use the Hofstede's national cultural dimensions theory to explain our insights. Specifically, in China, a country with a relatively high degree of power distance and collectivism, the companies tend to care more about the group interest and loyalty. The Chinese fashion companies are more willing to play the leading role in managing the relationships with their retailers, and offer MMP to them. In the U.S.A., a country with a relatively low degree of power distance and individualism, the companies are more likely to emphasize their own interest in trading. In fact, we find that American fashion suppliers tend to bargain with their retailers, and they are less willing to proactively provide the markdown money as a sponsor. Finally, managerial implications are provided, and several future challenges on MMP are examined.

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Markdown Pricing with Unknown Fraction of Strategic Customers

Cited by 100 publications

References 45 publications

Dynamic Pricing in the Presence of Social Learning and Strategic Consumers

Dynamic Pricing in the Presence of Social Learning and Strategic Consumers

Online and Offline Information for Omnichannel Retailing

Enhancing Economic Sustainability by Markdown Money Supply Contracts in the Fashion Industry: China vs U.S.A.

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