Pricing decision with conspicuous customers: quick responses versus value-added services

In order to eliminate the negative effects of customer strategic behaviour, retailers often adopt quick response or value-added services. While in a luxury market with conspicuous customers, retailers' pricing decisions of these two strategies become more complicated. This paper studies a supply chain with a retailer serving a mixture of conspicuous and ordinary strategic customers. We develop three models so that the retailer provides (i) neither quick response nor value-added services; (ii) only quick response; (iii) only value-added services. Subsequently, we analyse the impacts of conspicuous customers on quick response and value-added services by pricing and strategy comparisons. The model further extends to the situation including both strategies. The results show that, firstly, when the proportion is less than a threshold, the retailer should adopt a low price strategy, and vice versa. Besides, the quick response could induce the retailer to adopt high price while value-added services inhibit it. Secondly, the customer conspicuous behaviour can motivate retailers to provide quick response and inhibit their value-added services. Finally, by observing the retailer's decisions when they can adopt two strategies simultaneously, we find that the existence of quick response can amplify the benefits of value-added services.

Automated summary

This paper examines retailers' pricing decisions and strategies in response to customer strategic behavior in the luxury market. The study finds that customer conspicuous behavior can influence retailers' choices in providing quick response or value-added services. Quick response may lead to high pricing while value-added services might inhibit it. Additionally, customer conspicuous behavior can motivate retailers to provide quick response but inhibit their value-added services.