Optimal pricing, modularity, and return policy under mass customization
Journal
IEEE Transactions on Systems, Man, and Cybernetics Part A:Systems and Humans
Journal Volume
42
Journal Issue
3
Pages
604-614
Date Issued
2012
Author(s)
Abstract
Mass customization (MC) is a pertinent industrial practice. Different from the non-MC products, consumer return for MC products is typically prohibited. MC retailers can thus gain significant competitive advantages by offering a consumer return policy. By constructing an analytical model with both demand and return uncertainties, we study in this paper the optimal policy with three dimensional decisions on pricing, consumer return, and level of modularity under a mean-variance formulation. Structural properties of the model are revealed, and the closed-form solutions for the optimal decisions are derived. An extensive sensitivity analysis is subsequently conducted to explore how the risk sensitivity, demand uncertainty, return uncertainty, and other important parameters affect the optimal decisions and profits. A few counterintuitive findings are obtained, and important insights are generated. ? 2012 IEEE.
Subjects
Mean-variance model; operations management; optimal modular design; optimal pricing; optimal return; uncertainty
Other Subjects
Mean variance model; Modular designs; Operations management; optimal return; uncertainty; Competition; Computer aided manufacturing; Costs; Profitability; Three dimensional; Optimization
Type
journal article