Selling luxury fashion to conspicuous consumers in the presence of discount sensitivity behavior

In the luxury fashion industry, with the possibility of stockout, conspicuous consumers may purchase products at the full price rather than wait for any potential discount. However, in the presence of a possible future discount, conspicuous consumers may also feel regret to purchase at the full price if they find that the product is still available at the markdown price. Considering the possible stockout and future discount, in this paper, we evaluate the firm's pricing and production decisions on conspicuous consumers in the presence of discount sensitivity behavior. We build up an analytical model and consider that the customer purchasing utility decreases with discount sensitivity if she/he purchases at the full price. The firm can create scarcity in the market by reducing inventory to induce customers to purchase early. If the fraction of the customers with discount sensitivity is lower than a certain level, the firm should intentionally produce a large amount of products. Moreover, we find that product design enhancement can effectively weaken the negative effects of customer discount sensitivity on the quantity decisions. More managerial insights are discussed.