Optimal pricing strategy: How to sell to strategic consumers?

Meng Wu, Yun Ran and Stuart X. Zhu

International Journal of Production Economics, 2022, vol. 244, issue C

Abstract: 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.

Keywords: High-low pricing; Fixed pricing; Strategic consumer; Markdown; Newsvendor model (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:244:y:2022:i:c:s0925527321003431

DOI: 10.1016/j.ijpe.2021.108367

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