Optimal pricing strategies in advance selling with freebies
Date Issued
2014
Date
2014
Author(s)
Shih, Han-Ju
Abstract
More and more sellers are offering freebies in advance selling. Advance selling helps sellers not only to ensure parts of the demand in advance, but also reduce the demand uncertainty and inventory risk. Consumers who buy in advance can avoid not being able to find products in the spot market, but they may prefer not buying in advance because of the uncertainty of the product valuation in advance. Therefore, sellers would offer pre-order incentive to encourage consumers to pre-order. Freebies are one of the examples. Freebies can be used to compensate for the uncertainty and draw attention of new customers, but sellers would have additional costs as well. As a results, considering offering freebies in advance selling, this research presents a two-period setting model, where the first period is advance selling period and the second is the spot period, and finds the optimal solutions for the price in advance and in spot, the production level and the effort to put in freebies. In this research, it is found that freebies can help encourage consumers to pre-order with a higher price to protect the profit margin of the product. In addition, the more benefit the freebie provides, the more wiliness the seller would take the risk in the spot period. However, selling in advance with freebies is not always
the best options for the seller. When having greater profit margin but limited capacity, it would be the optimal strategy for the seller to sell in advance with freebies.
Subjects
預售
贈品促銷
最適定價
Type
thesis
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