Optimal trade-in and refurbishment strategies for durable goods

Many manufacturers in the automobile industry accommodate the huge number of used cars by offering trade-in programs. In addition, some manufacturers have begun considering product refurbishment, a policy that is widely adopted in the electronics industry. Therefore, we are motivated to explore the reasons behind different practices in the automobile industry. We propose an analytical framework to identify when a manufacturer facing strategic consumers should offer trade-in (and refurbishment) programs. For that purpose, we analyze and compare the results of three models: no program, trade-in program only, and trade-in and refurbishment programs. This study establishes that the manufacturer can always increase his profit by improving the quality of new products and reducing the quality depreciation rate. Yet when the manufacturer does not (resp., does) offer a refurbishment program, his profit must (resp., need not) decrease with any increase in the production cost of new products. Finally, the manufacturer prefers to offer (a) trade-in programs only when the production cost of new products is low, (b) both trade-in and refurbishment programs when that cost is moderate, and (c) neither program when the cost to produce new products is high. Our numerical study reveals more management implications for the manufacturer's preferred decision.</p

Parallel importation in a supply Chain:The impact of gray market structure

With the rapid development of global economic integration, the size of gray markets continues to expand. The purpose of this paper is to analyse the impact of different structures of gray markets on supply chain decisions and profits. Using game theory, we comprehensively analyze pricing and quantity decisions under monopoly parallel importation (either third-party parallel importation or retailer parallel importation), and duopoly parallel importation, including three different structures in which the retailer and the third-party parallel importation coexist in gray markets with different power structures. We obtain equilibrium results for each structure, compare the optimal strategies of these structures, and develop valuable insights

Optimal pricing strategy:How to sell to strategic consumers?

Technological advances are preparing consumers to plan their purchases strategically. Selling to strategic consumers at a fixed price forgoes the profit from salvaging inventory, whereas high-low pricing, as a ubiquitous pricing strategy, is costly due to the offered markdown discount. This research explores the overall impact of consumer's strategic buying behaviour on a pricing strategy, and identifies conditions where fixed pricing, strategic high pricing, or high-low pricing is the best approach by analytically comparing the profits of the three pricing strategies. Our results show that high-low pricing is appropriate only if the offered markdown discount is relatively small. If strategic consumers have a small population and the needed markdown discount is relatively large, retailers can ignore strategic buying behaviour and sell products at a fixed price. Our results emphasize that the markdown discount for clearance sales and the market structure of heterogeneous consumers play vital roles in determining the optimal pricing strategy

A loss averse competitive newsvendor problem with anchoring

We study a loss averse competitive newsvendor problem with anchoring under prospect theory. We consider two demand-splitting rules for quantity competition, including proportional demand allocation and demand reallocation. We characterize the optimal order quantity decisions under both demand rules. We find that the newsvendor's order quantity is decreasing with the degree of loss aversion and the value of the anchor. Compared with an integrated risk-neutral supply chain, a positive anchor always leads to inventory understocking, whereas a negative anchor may result in a serious overstocking. Under competition with homogeneous newsvendors, competition always makes newsvendors order more, which does not necessarily lead to a loss of profit. For newsvendors with a high anchor, competition helps to prevent understocking caused by the anchoring effect, which leads to an increase in profit. For newsvendors with a low anchor, competition exacerbates overstocking, which results in a loss of profit. Under competition with heterogeneous newsvendors, a newsvendor with a higher degree of loss aversion or with a higher anchor adopts a more conservative strategy (i.e. choose a lower order quantity), which results in a smaller market share. (C) 2017 Elsevier Ltd. All rights reserved

Online marketing:When to offer a refund for advanced sales

Advance selling is a marketing strategy commonly used by online retailers to increase sales by exploiting consumer valuation uncertainty. Recently, some online retailers have started to allow refunds on products sold in advance. On the one hand this reduces the net advance sales, but on the other hand it allows a higher advance sales price. This research is the first to explore the overall effect of allowing a refund on profits from advance sales, identifying conditions where advance selling with or without refunds (or no advance selling at all) is best. We analytically compare the profits of three advance selling strategies: none, without refund, and with refund. We show that selling in advance and allowing a refund is optimal for products with a relatively small profit margin and small strategic market size, and that the added profit can be considerable. Our results guide managers in selecting the right advance selling strategy. To facilitate this, we graphically display, based on the two dimensions of regular profit margin and strategic market size, under what conditions the different strategies are optimal

Advance Selling and Advertising:A Newsvendor Framework

Many firms offer consumers the opportunity to place advance orders at a discount when introducing a new product to the market. Doing so has two main advantages. First, it can increase total expected sales by exploiting valuation uncertainty of the consumers at the advance ordering stage. Second, total sales can be estimated more accurately based on the observed advance orders, reducing the need for safety stock and thereby obsolescence cost. In this research, we derive new insights into trading off these benefits against the loss in revenue from selling at a discount at the advance stage. In particular, we are the first to explore whether firms should advertise the advance ordering opportunity. We obtain several structural insights into the optimal policy, which we show is driven by two dimensions: the fraction of consumers who potentially buy in advance (i.e., strategic consumers) and the size of the discount needed to make them buy in advance. If the discount is below some threshold, then firms should sell in advance and they should advertise that option if the fraction of strategic consumers is sufficiently large. If the discount is above the threshold, then firms should not advertise and only sell in advance if the fraction of strategic consumers is sufficiently small. Graphical displays based on the two dimensions provide further insights

Corrigendum to “A risk-averse competitive newsvendor problem under the CVaR criterion” [Int. J. Prod. Econ. 156 (2014) 13–23]

The authors regret that the calculated equilibrium order quantities provided in Table 1 of Section 7.2 on Page 18 are incorrect. In the corrigendum, we provide the updated values to Table 1. The authors would like to apologise for any inconvenience caused

Analysis of gray markets in differentiated duopoly

In recent years, gray markets have become a significant phenomenon in the business practice. This paper investigates the gray markets issues in differentiated duopoly case by considering quantity competition among firms. We develop a game-theoretic model and provide equilibrium results for three scenarios, i.e. the benchmark scenario ‘no gray market’, the scenario ‘parallel imports act as a buffer against a follower’s product’ and the scenario ‘gray markets stimulate the competition’. By the analysis of the equilibrium results, some important managerial insights are obtained. Finally, by comparison of the equilibrium results among different scenarios, we study the impact of gray markets on manufacturers’ optimal strategies and profits in differentiated duopoly

Optimal remanufacturing strategies in name-your-own-price auctions with limited capacity

We study optimal pricing and production strategies faced by a manufacturer in a remanufacturing/manufacturing system. In the reverse channel, returns are collected under a name-your-own-price (NYOP) bidding mechanism. The manufacturer has a limited capacity to produce new and remanufactured products. We characterize the optimal decisions of the consumers and the manufacturer. We find that under the NYOP mechanism, the manufacturer׳s optimal strategies mainly depend on the bidding cost, the cost saving of remanufacturing, the production capacity, and the market scale. In addition, when remanufacturing needs more capacity than manufacturing , the manufacturer may adopt pure manufacturing strategy without remanufacturing. We also compare this mechanism with the traditional list-price mechanism and find that the manufacturer prefers the NYOP mechanism under the conditions of a low reverse market share, a high manufacturing cost, a sufficient capacity, or a low capacity requirement of remanufacturing. Numerical studies investigate the effect of key parameters on the manufacturer׳s profit and some managerial insights are obtained

Interactive bundle pricing strategy for online pharmacies

Online retail pharmacies usually price their products differently from traditional drugstores. Based on real-time consumer behaviors, this paper proposes a dynamic bundle pricing strategy to maximize the pharmacy's profit. Given free shipping thresholds and consumer budgets, we propose a mixed-integer nonlinear programming model and a heuristic to sequentially price customized bundles. We further conduct a numerical study using the data from a leading e-pharmacy in China. Our computational results indicate that the proposed model not only improves the e-pharmacy's profit by attracting more customers but noticeably contributes to consumer surplus. Through sensitivity analysis, our model is proved to be robust under various scenarios.</p