Journal
INTERNATIONAL JOURNAL OF PRODUCTION ECONOMICS
Volume 244, Issue -, Pages -Publisher
ELSEVIER
DOI: 10.1016/j.ijpe.2021.108367
Keywords
High-low pricing; Fixed pricing; Strategic consumer; Markdown; Newsvendor model
Categories
Funding
- National Natural Science Foundation of China [72071136, 71911530461, 71571125, 71831007, 71871099]
- Sichuan University [SKSYL201821]
- European Union's Horizon 2020 research and innovation programme [101022484]
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This research explores the impact of consumer's strategic buying behavior on pricing strategy and identifies the optimal pricing strategy through comparing profits. High-low pricing is only suitable when the offered markdown discount is relatively small. If strategic consumers are few and require a large discount, retailers can ignore strategic buying behavior and sell products at a fixed price.
Technological advances are preparing consumers to plan their purchases strategically. Selling to strategic consumers at a fixed price forgoes the profit from salvaging inventory, whereas high-low pricing, as a ubiquitous pricing strategy, is costly due to the offered markdown discount. This research explores the overall impact of consumer's strategic buying behaviour on a pricing strategy, and identifies conditions where fixed pricing, strategic high pricing, or high-low pricing is the best approach by analytically comparing the profits of the three pricing strategies. Our results show that high-low pricing is appropriate only if the offered markdown discount is relatively small. If strategic consumers have a small population and the needed markdown discount is relatively large, retailers can ignore strategic buying behaviour and sell products at a fixed price. Our results emphasize that the markdown discount for clearance sales and the market structure of heterogeneous consumers play vital roles in determining the optimal pricing strategy.
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