Designing Free Sofware for Marketing: A Game Theoretic Approach

We develop a vertical differentiation game-theoretic model that addresses the issue of designing free software samples for attaining follow-on sales. When software samples are akin to durable goods, a Monopolist giving a free sample away is likely to engender the cannibalization of sales of its commercial product. We analyze the optimal design of free software according to two characteristics: the trial time allotted for sampling (potentially renewable) and the proportion of features included in the sample. We find that these two dimensions play different roles whenever the software product is innovative or standard. We draw implications regarding the effectiveness of marketing strategies depending on the type of software product offered by a Monopolist.Vertical Differentiation, Monopolist, Free sample, Software, Durable goods, Sales Cannibalization, Optimal Design.

Optimal inventory cycle counting

The heart of inventory transactions management involves obtaining an accurate count of on-hand inventories employing different procedures. Among such procedures cycle counting is said to provide better inventory record accuracy for financial control and production planning. However, these procedures use rather arbitrary basis for classifying items and for setting the count frequency within each strata. This paper develops a simple optimization model of inventory cycle counting based on traditional stratified sampling theory. Such a model allows the inventory manager to make statistically supported statements regarding inventory record accuracy so as to meet financial control requirements with a minimum of cycle counting effort. A numerical example is included to illustrate the model.

Consumer Pseudo-Showrooming and Omni-Channel Placement Strategies

Recent advances in information technologies (IT) have powered the merger of online and offline retail channels into one single platform. Modern consumers frequently switch between online and offline channels when they navigate through various stages of the decision journey, motivating multichannel sellers to develop omni-channel strategies that optimize their overall profit. This study examines consumers’ cross-channel search behavior of pseudo-showrooming, or the consumer behavior of inspecting one product at a seller’s physical store before buying a related but different product at the same seller’s online store, and investigates how such consumer behavior allows a multichannel seller to achieve better coordination between its online and offline arms through optimal product placement strategies. We develop a stylized model in which a multichannel firm offers a product line consisting of two horizontally differentiated products. Consumers are uncertain about the true value of either product. A consumer’s uncertainty regarding a particular product’s value is fully resolved after inspecting that product in person, and can also be partially resolved after inspecting the other related product. By selling only one product through the dual channel and the other product through the online channel exclusively, the firm induces consumer pseudo-showrooming for the online exclusive product. Our analysis shows that this product placement strategy generates a greater profit than selling both products through the dual channel, if the fit probability of individual products and consumers’ cost for returning a misfit product are both in the intermediate range. Moreover, we find that over a large parameter region, consumers also enjoy a greater total surplus under the firm’s product placement strategy that induces consumer pseudo-showrooming. Furthermore, we find that the firm garners the most benefit from inducing consumer pseudo-showrooming by selling the higher-quality product or the higher-demand product through the online channel exclusively. Collectively, our study offers a compelling demand-side justification of the commonly witnessed practice among multichannel sellers to offer products online exclusively when offline selling is feasible