Buy two and get X% off: Quantity discount under consumers’ anticipated regret

Many retailers launch promotions to accelerate sales of perishable products. We portray a special promotion in which a retailer offers a discounted pricing option consisting of multiple units of a specific product, i.e., quantity discount. We study the retailer's optimal pricing and ordering strategies in the setting where consumers' behavioural motive and valuation uncertainty affect their purchase decision. The motive is consumers' anticipated regret, and the uncertainty comes from the probability of desiring to consume a second unit and its quality loss. Regret arises when a consumer initially chooses a single unit but misses the quantity discount upon desiring to consume the second one, or when the consumer enjoys the discount option but realizes that the additional units are no longer necessary or that the pricing is less attractive. We first analyze the benefits to the retailer of offering the quantity discount. We then show that both anticipated regret and future uncertainty have important operational and profit implications for the retailer. We conduct numerical studies to examine the roles of consumers' behavioural motive and future uncertainty in affecting the retailer's optimal decisions and profit. Finally, we discuss leveraging consumers' behavioural regularities to yield behavioural benefits of pricing.