Pricing decision with conspicuous customers: quick responses versus value-added services

Weihua Liu, Wanying Wei, Meili Wang, Ou Tang and Li Zhou

International Journal of Production Research, 2021, vol. 59, issue 6, 1691-1713

Abstract: In order to eliminate the negative effects of customer strategic behaviour, retailers often adopt quick response or value-added services. While in a luxury market with conspicuous customers, retailers’ pricing decisions of these two strategies become more complicated. This paper studies a supply chain with a retailer serving a mixture of conspicuous and ordinary strategic customers. We develop three models so that the retailer provides (i) neither quick response nor value-added services; (ii) only quick response; (iii) only value-added services. Subsequently, we analyse the impacts of conspicuous customers on quick response and value-added services by pricing and strategy comparisons. The model further extends to the situation including both strategies. The results show that, firstly, when the proportion is less than a threshold, the retailer should adopt a low price strategy, and vice versa. Besides, the quick response could induce the retailer to adopt high price while value-added services inhibit it. Secondly, the customer conspicuous behaviour can motivate retailers to provide quick response and inhibit their value-added services. Finally, by observing the retailer's decisions when they can adopt two strategies simultaneously, we find that the existence of quick response can amplify the benefits of value-added services.

Date: 2021
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DOI: 10.1080/00207543.2020.1724341

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