Retail Sample Boxes: Counteracting the Adverse Effect of Accelerated Learning via Future Credit

Alireza Yazdani (), Eren B. Çil () and Michael Pangburn ()
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Alireza Yazdani: Department of Technology and Operations Management, College of Business Administration, California State Polytechnic University, Pomona, California 91768
Eren B. Çil: Department of Operations and Business Analytics, Lundquist College of Business, University of Oregon, Eugene, Oregon 97403
Michael Pangburn: Department of Operations and Business Analytics, Lundquist College of Business, University of Oregon, Eugene, Oregon 97403

Manufacturing & Service Operations Management, 2023, vol. 25, issue 5, 1643-1659

Abstract: Problem definition: Consumers often try a few varieties of an experience product before establishing a shopping routine. In retailing, a sample box typically refers to a package of multiple trial-sized varieties within a product category. Sample boxes potentially create value by helping consumers resolve their uncertainties regarding these varieties earlier and at a lower cost. In this paper, we study how firms and consumers share this added value under different market scenarios. We also derive the optimal pricing of sample boxes in product categories for which consumers make ongoing purchases over time. Academic/practical relevance : We thus extend the literature by proposing a framework that integrates sequential search and seller-induced learning. Methodology : We analyze a firm’s pricing decisions when consumers either purchase full-sized options sequentially or bypass that process via a sample box. We use dynamic programming to analyze consumers’ search problem (in the absence of a sample box) and nonlinear optimization to analyze the firm’s problem. Results : As anticipated, the informational value of a sample box yields an optimal price premium relative to the prices of individual products. Despite this price premium, we show that the firm’s expected profit may decrease because a sample box accelerates consumer learning, and thus, it may help consumers settle upon an outside option earlier. We establish that a firm can reverse the potential adverse profit impact of selling sample boxes by introducing an optimally specified future credit. Managerial implications : Offering sample boxes is a common practice in retailing. Contrasting the resulting expected profits with and without the sample box option, our results highlight that managers may be ill-advised to offer a sample box in the absence of the future credit mechanism. This study is the first to address the pricing of sample boxes and show the optimality of offering credit toward a subsequent purchase.

Keywords: sample box; experience good; repeat purchasing; sequential search; future credit (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:25:y:2023:i:5:p:1643-1659

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