Evolutionary location and pricing strategies for service merchants in competitive O2O markets

Zhou He, Edwin Tai Chiu Cheng, Jichang Dong, Shouyang Wang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

48 Citations (Scopus)

Abstract

Attracting customers in the online-to-offline (O2O) business is increasingly difficult as more competitors are entering the O2O market. To create and maintain sustainable competitive advantage in crowded O2O markets requires optimizing the joint pricing-location decision and understanding customers' behaviours. To investigate the evolutionary location and pricing behaviors of service merchants, this paper proposes an agent-based competitive O2O model in which the service merchants are modeled as profit-maximizing agents and customers as utility-maximizing agents that are connected by social networks through which they can share their service experiences by word of mouth (WOM). It is observed that the service merchant should standardize its service management to offer a stable expectation to customers if their WOM can be ignored. On the other hand, when facing more socialized customers, firms with variable service quality should adopt aggressive pricing and location strategies. Although customers' social learning facilitates the diversity of services in O2O markets, their online herd behaviors would lead to unpredictable offline demand variations, which consequently pose performance risk to the service merchants.
Original languageEnglish
Pages (from-to)595-609
Number of pages15
JournalEuropean Journal of Operational Research
Volume254
Issue number2
DOIs
Publication statusPublished - 16 Oct 2016

Keywords

  • Agent-based modeling
  • Customer behavior
  • Location
  • Pricing
  • Service competition

ASJC Scopus subject areas

  • Modelling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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