Optimal advance-selling strategy for fashionable products with opportunistic consumers returns

Yongjian Li, Lei Xu, Tsan Ming Choi, Kannan Govindan

Research output: Journal article publicationJournal articleAcademic researchpeer-review

34 Citations (Scopus)

Abstract

Advance-selling (AS) is a commonly observed industrial practice in which a retailer allows consumers to prebook the fashionable product before the real selling season starts. Motivated by this practice, this paper studies AS strategy for a retailer who sells a newsvendor-type of fashionable product in light of potential consumer opportunistic returns. In our model, the consumers face valuation uncertainty and know their valuation realization only after product acquisition. There also exists aggregate demand uncertainty, captured in the conventional newsvendor model. All preorders are fulfilled at the beginning of a normal-selling season. We build analytical optimization models and consider three strategic options for the retailer, namely, no advance-selling allowed (NAP), advance-selling with full refund (AFP) and advance-selling with partial refund (APP), where there are two suboptions under APP. We derive the retailer's optimal pricing and refund policies for each option. By comparing the results in the above options, important insights are generated. Finally, we conduct a numerical analysis to further examine the impacts brought by consumers valuation, market condition, and consumers classification on the optimal strategy.
Original languageEnglish
Article number6616619
Pages (from-to)938-952
Number of pages15
JournalIEEE Transactions on Systems, Man, and Cybernetics: Systems
Volume44
Issue number7
DOIs
Publication statusPublished - 1 Jan 2014

Keywords

  • Advance-selling
  • Management decision making
  • Marketing-operations
  • Moral-hazard
  • Return policy
  • Valuation uncertainty

ASJC Scopus subject areas

  • Software
  • Control and Systems Engineering
  • Human-Computer Interaction
  • Computer Science Applications
  • Electrical and Electronic Engineering

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