Pricing Strategy in Dual-Channel Supply Chains with Loss-Averse Consumers

Chengli Liu, C. K.M. Lee, K. H. Leung

Research output: Journal article publicationJournal articleAcademic researchpeer-review

1 Citation (Scopus)

Abstract

In this paper, loss-averse consumer behavior during purchase decision-making process in the dual-channel supply chain is modeled. Loss-averse consumers prefer avoiding losses to gain utility with respect to their reference point while purchasing the product. Two product categories are classified: (1) basic product and (2) luxury goods which have lower and higher reference utility to consumers, respectively. The research objective is to determine the optimal price strategy in dual-channel supply chains and discuss the decision behind loss-averse consumers. To model consumers' valuation of a product, prospect theory is adopted to calculate the demands of each channel. Then, the optimal pricing strategy and the corresponding profits are found out in a Stackelberg game manner. The results encourage manufacturers of basic goods to engage in dual-channel strategy. Effect of "double marginalization" is reduced if consumers are loss-averse in the dual-channel supply chain. Furthermore, the direct channel online contributes larger demand to the manufacturer. However, manufacturers of luxury goods are not suggested for dual-channel strategy because the demand for direct channel online is negligible and the demand for the retail channel remains unchanged. Nevertheless, retailers cannot obtain benefit from dual-channel and as a result, the profit of basic goods retailers will be reduced.

Original languageEnglish
Article number1950027
JournalAsia-Pacific Journal of Operational Research
Volume36
Issue number5
DOIs
Publication statusPublished - 27 Sep 2019

Keywords

  • Dual-channel
  • loss aversion
  • pricing strategy
  • prospect theory
  • reference point

ASJC Scopus subject areas

  • Management Science and Operations Research

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