The Joint Decision of Cost Reduction Effort and Product Rollover Strategy for Fashion Items in the Presence of Strategic Consumers

The trend in the fashion industry forces them to change their collection more frequently than ever. Product rollover strategy refers to the retailer’s decision how to manage the old product when the new one enters the market. They can either withdraw the old product to avoid cannibalization between two products (called a single rollover strategy) or sell both to maximize total sales (called a dual rollover strategy). This study considers a supplier who sells an innovative product through a retailer, which the latter subject to decides the rollover strategy. Through analytical approaches, we investigate the interaction between a supplier's cost-reduction and a retailer's rollover strategy when strategic consumers are present in the market. We found that the supplier's capability in R&D plays a crucial role in equilibrium results. When the firm is highly efficient in cost reduction, the introductory product price can be increased regardless of the rollover strategy being chosen. Our study demonstrates a counterintuitive result where a dual rollover strategy might have a lower introductory price compared to the single rollover strategy when the investment in production cost takes place. This finding shows how a supplier’s cost reduction effort mitigates the cannibalization effect while delivering a better profit

Perilisan Produk Baru dan Pemilihan Strategi e-channel Untuk Produsen Produk Fesyen

Penelitian ini mempelajari koordinasi antara produsen dan retailer produsen fesyen untuk perencanaan strategi penggantian produk (rollover strategy) saat produk baru siap untuk dirilis. Produsen dapat memilih untuk menarik produk lama satat produk baru dirilis (single rollover strategy) atau menjual produk lama dan produk baru secara bersamaan (dual rollover strategy). Seperti pada kondisi saat ini, retailer memiliki dua saluran penjualan yang digunakan secara bersamaan, yaitu saluran penjualan offline dan online. Untuk menghindari konflik antar saluran penjualan, digunakan konsep ekslusifitas untuk masing – masing saluran penjualan, dimana saluran offline digunakan untuk menjual produk yang baru dirilis sementara saluran online digunakan untuk menjual produk yang sudah berada pada fase decline. Penelitian ini menunjukkan bahwa produsen akan selalu lebih memilih dual rollover strategy dibanding single rollover strategy, sementara retailer hanya akan condong ke dual rollover strategy saat tingkat penerimaan konsumen terhadap produk lama cukup tinggi.  Penelitian ini juga mendemonstrasikan benefit dari dynamic revenue sharing allocation untuk memitigasi konflik pada rollover strategy saat konsumen sangat sensitif terhadap perubahan trend fesyen

The Value of “Bespoke”: Demand Learning, Preference Learning, and Customer Behavior

“Bespoke,” or mass customization strategy, combines demand learning and preference learning. We develop an analytical framework to study the economic value of bespoke systems and investigate the interaction between demand learning and preference learning. We find that it is possible for demand learning and preference learning to be either complements or substitutes, depending on the customization cost and the demand uncertainty profile. They are generally complements when the personalization cost is low and the probability of having high demand is large. Contrary to usual belief, we show that higher demand uncertainty does not necessarily yield more complementarity benefits. Our numerical study shows that the complementarity benefit becomes weaker when customers are more strategic. Interestingly, the substitute loss can occur when the personalization cost is small and the probability of having high demand is large, when customers are strategic.postprin

Impact of regulatory intervention and consumer environmental concern on product introduction

To meet consumer expectations for greener and better quality products and to ensure effective compliance with emissions regulations, firms have begun investing in improving the quality and greenness (low carbon level) of existing products. Emissions regulations currently restrict carbon emissions from product manufacturing rather than the emissions from the use of sold products. However, a large amount of carbon may be emitted from the use of products. Motivated by these issues, we analytically investigate the impact of environmental concern and the policies of regulators, and consumer environmental concern on product introduction. Our results show that (i) whether emissions trading regulations benefit firms depends on the quality improvement capability, and the interaction between emissions price and allowed emissions cap; (ii) the environmental concern of consumers helps firms obtain higher profits when quality improvement capability is relatively high, and always benefits environmental performance; and (iii) relatively low environmental concern set by regulators is detrimental to the maximization of social welfare, whereas high regulator environmental concern helps to maximize social welfare but at the expense of reducing firms’ profits

Three Essays on Managing Customer-Based Strategies: A Pricing and Revenue Management Approach

Many firms and organizations with already-optimized business functions are under market pressure to protect their narrow profit margins. Their need for supplemental and reliable revenues calls for performance optimization beyond the core business functions. Motivated by applications from online social media and the airline industry, in my dissertation, I focus on the revenue management and pricing decisions of customer-based plans and programs. More formally, the research question addressed in this study is: How can firms effectively use customer-based pricing strategies to boost revenues? My dissertation consists of three essays. In the first essay, I analyze the ongoing competition among online social media (OSMs) to attract users. Concentrating on the importance of community retention and expansion to OSMs in preserving financially sustainable business models, I investigate whether OSMs should develop revenue sharing programs and reward their contributing users from their limited revenue streams. I present a duopoly OSM game (with a less favourable and a more favourable OSM) in which heterogeneous users choose their levels of contribution with respect to each OSM based on their preferences. In this chapter, I explore how online users’ actions and perspectives impact the outcome of the competition among OSMs. Furthermore, I investigate how small social media firms can compete with a dominant firm in the market. In the second essay, I study the role of ancillary revenue and its significance for industries such as airlines. These firms can barely survive without ancillary fees, even when their capacities are almost fully utilized. I consider the case in which customers-changing rates between flights are stochastic but decreasing with reference to the change fees. In this essay, I examine how firms should design change fees to manage customers’ switching behaviour. Specifically, I incorporate change fee revenues as a portion of total revenue structure and investigate how firms should update their markdown pricing strategies when they face price-tracking customers. In the third essay, I focus on the dynamics between a firm and customers who are uncertain about their future travel plans. While the firm maximizes its revenue by imposing optimal change fees, customers consider their travel plan uncertainties and maximize their utilities by responding strategically to these fares. In this study, I seek to answer two important policy questions: Although imposing a change fee could increase total revenue, does it burden the firm with a lower customer demand? How should the optimal monopolistic price be set with the presence of a change fee? Without imposing any distributional assumptions, I analytically derive each market player’s best reaction to the other to prescribe the characteristics of the firm/customer interaction equilibrium

Dynamic Pricing and Inventory Management: Theory and Applications

We develop the models and methods to study the impact of some emerging trends in technology, marketplace, and society upon the pricing and inventory policy of a firm. We focus on the situation where the firm is in a dynamic, uncertain, and (possibly) competitive market environment. The market trends of particular interest to us are: (a) social networks, (b) sustainability concerns, and (c) customer behaviors. The two main running questions this dissertation aims to address are: (a) How these emerging market trends would influence the operations decisions and profitability of a firm; and (b) What pricing and inventory strategies a firm could use to leverage these trends. We also develop an effective comparative statics analysis method to address these two questions under different market trends. Overall, our results suggest that the current market trends of social networks, sustainability concerns, and customer behaviors have significant and interesting impact upon the operations policy of a firm, and that the firm could adopt some innovative pricing and inventory strategies to exploit these trends and substantially improve its profit. Our main findings are: (a) Network externalities (the monopoly setting). We find that network externalities prompt a firm to face the tradeoff between generating current profits and inducing future demands when making the price and inventory decisions, so that it should increase the base-stock level, and to decrease [increase] the sales price when the network size is small [large]. Our extensive numerical experiments also demonstrate the effectiveness of the heuristic policies that leverage network externalities by balancing generating current profits and inducing demands in the near future. (Chapter 2.) (b) Network externalities (the dynamic competition setting). In a competitive market with network externalities, the competing firms face the tradeoff between generating current profits and winning future market shares (i.e., the exploitation-induction tradeoff). We characterize the pure strategy Markov perfect equilibrium in both the simultaneous competition and the promotion-first competition. We show that, to balance the exploitation-induction tradeoff, the competing firms should increase promotional efforts, offer price discounts, and improve service levels. The exploitation-induction tradeoff could be a new driving force for the fat-cat effect (i.e., the equilibrium promotional efforts are higher under the promotion-first competition than those under the simultaneous competition). (Chapter 3.) (d) Trade-in remanufacturing. We show that, with the adoption of the very commonly used trade-in remanufacturing program, the firm may enjoy a higher profit with strategic customers than with myopic customers. Moreover, trade-in remanufacturing creates a tension between firm profitability and environmental sustainability with strategic customers, but benefits both the firm and the environment with myopic customers. We also find that, with either strategic or myopic customers, the socially optimal outcome can be achieved by using a simple linear subsidy and tax scheme. The commonly used government policy to subsidize for remanufacturing alone, however, does not induce the social optimum in general. (Chapter 4.) (d) Scarcity effect of inventory. We show that the scarcity effect drives both optimal prices and order-up-to levels down, whereas increased operational flexibilities (e.g., the inventory disposal and inventory withholding opportunities) mitigate the demand loss caused by high excess inventory and increase the optimal order-up-to levels and sales prices. Our extensive numerical studies also demonstrate that dynamic pricing leads to a much more significant profit improvement with the scarcity effect of inventory than without. (Chapter 5.) (e) Comparative statics analysis method. We develop a comparative statics method to study a general joint pricing and inventory management model with multiple demand segments, multiple suppliers, and stochastically evolving market conditions. Our new method makes componentwise comparisons between the focal decision variables under different parameter values, so it is capable of performing comparative statics analysis in a model where part of the decision variables are non-monotone, and it is well scalable. Hence, our new method is promising for comparative statics analysis in other operations management models. (Chapter 6.