No full-text available
To read the full-text of this research,
you can request a copy directly from the authors.
... Depending on the cash rebate provider, there are different models, i.e., the no-cash-rebate model, the platform model, the manufacturer model, and the cooperative model, in which the platform and manufacturer cooperate to provide a cash rebate. The trade-in program under the E-SC supports cross-category trade-ins to promote product sales [29], so consumers can choose whether or not to participate in the trade-in program. Therefore, this study makes a distinction between the way consumers purchase The trade-in program under the E-SC supports cross-category trade-ins to promote product sales [29], so consumers can choose whether or not to participate in the trade-in program. ...
... The trade-in program under the E-SC supports cross-category trade-ins to promote product sales [29], so consumers can choose whether or not to participate in the trade-in program. Therefore, this study makes a distinction between the way consumers purchase The trade-in program under the E-SC supports cross-category trade-ins to promote product sales [29], so consumers can choose whether or not to participate in the trade-in program. Therefore, this study makes a distinction between the way consumers purchase the product without categorizing consumers. ...
As the consumer market becomes more saturated, the e-commerce supply chain (E-SC) has introduced the trade-in program in an attempt to drive consumption. This paper considers the strategy of the E-SC to provide cash rebates for consumers participating in the trade-in program and incorporates the e-commerce platform’s trade-in service efforts into the E-SC’s decision-making system. Depending on who provides the cash rebate, we construct four decision-making models of the E-SC, i.e., the no-cash-rebate model, the manufacturer model, the platform model, and the cooperative model, where both the manufacturer and the platform jointly provide the cash rebate. We show that the platform model reduces the trade-in service level, but the manufacturer model increases the trade-in service level. In addition, since the cash rebate increases operation costs, the sale price of products is inevitably improved. Furthermore, the platform model raises product demand, but the manufacturer model lowers product demand. The cooperative model proves effective in enhancing demand only when the manufacturer contributes a minor share of the cash rebate and the trade-in service is less efficient. Cash rebates can increase the E-SC’s profits, but the degree of this increase becomes smaller as the cash rebates increase. The manufacturer and the platform always want to exploit each other’s cash rebate strategies. Consumer surplus and social welfare are highest in the platform model and lowest in the manufacturer model. Taking into account the profits, consumer surplus, and social welfare, the platform model is the most conducive to E-SC system operations.
... Research on the relationship between brand loyalty and business performance, as reflected through customer relationship management, shows that CRM which utilizes resource databases in organizational management to increase market value, leads to success in business operations (Cui et al., 2022). Organizations must consistently enhance services, maintain resource readiness, and prioritize personnel development for customer satisfaction (Hongsakul & Subongkod, 2023;Tang et al., 2023). Satisfied customers foster faith in products and services, which is crucial for organizational operations. ...
... Pham & Vu (2019) emphasized the critical role of customer experiences in service quality and brand loyalty, where excellent services contribute to sustained business performance, customer retention, an expanded customer base, business growth, and increased revenue. Tang et al., (2023) further support this, highlighting the pivotal nature of customer loyalty in successful business operations, instilling confidence and faith in services, thereby ensuring continuous revenue generation, customer base expansion, increased revenue, and enhanced market share. Thus, brand loyalty serves as a crucial determinant influencing customer satisfaction, positive impressions, faith in service quality, and, subsequently, wordof-mouth promotion, organizational loyalty, business expansion, augmented customer base, higher revenue, and heightened market share, collectively ensuring sustained business operations. ...
This research aimed to study the causal factors affecting the business performance of private hospitals in Thailand from a management perspective. The sample consisted of 411 executives from private hospitals in Thailand, selected through purposive sampling. Data were collected via questionnaire, with SEM being used for analysis. The results indicated that the development of an enterprise resource system, including the competency and capability of entrepreneurs, positively influenced the focus on competitive differentiation. In turn, this focus had a positive effect on customer relationship management. Customer relationship management positively impacted brand loyalty, which subsequently enhanced business performance. In contrast, the competency and capability of entrepreneurs did not have an effect on business performance. The findings suggest that the growth and sustainability of business performance in private hospitals depends on various supportive factors. These range from policy formulation and the development of technological systems in services to strategies for building customer relationships, all contributing to competitive advantages, service loyalty, and success in achieving set goals.
... Jena and Sarmah (2014) [17] and Zhu et al. (2016) [18] examined recycling, remanufacturing, and trade-in approaches in a duopoly closed-loop supply chain, concluding that employing trade-in strategies can yield a competitive edge in terms of market share and profits. Tang et al. (2023) [19] extended this analysis to a duopoly context in which companies can choose either exclusive or non-exclusive trade-in strategies. Acknowledging that duopoly manufacturers' power may not be equal, Wei et al. (2020) [20] investigated the best pricing and selling formats for leader and follower manufacturers. ...
... Jena and Sarmah (2014) [17] and Zhu et al. (2016) [18] examined recycling, remanufacturing, and trade-in approaches in a duopoly closed-loop supply chain, concluding that employing trade-in strategies can yield a competitive edge in terms of market share and profits. Tang et al. (2023) [19] extended this analysis to a duopoly context in which companies can choose either exclusive or non-exclusive trade-in strategies. Acknowledging that duopoly manufacturers' power may not be equal, Wei et al. (2020) [20] investigated the best pricing and selling formats for leader and follower manufacturers. ...
Artificial intelligence-powered recommendation systems have gained popularity as a tool to enhance user experience and boost sales. Platforms often need to make decisions about which seller to recommend and the strength of the recommendation when conducting recommendations. Therefore, it is necessary to explore the recommendation strategy of the platform in the case of duopoly competition. We develop a game model where two competing manufacturers sell products through an agency contract on a common platform, and they can decide whether or not to provide recommendations to the manufacturers. Our highlight lies in the endogenous recommendation strength of the platform. The findings suggest that it is optimal for the platform to offer recommendation services when the commission rate is high. The platform also prefers to only recommend one manufacturer in the market with low or high competition, but it prefers to recommend both manufacturers in moderately competitive markets. From the view of manufacturers, they can benefit from the recommendation service as long as the commission rate is not too low. Moreover, recommending only one manufacturer consistently yields stronger recommendations compared to recommending multiple manufacturers. However, the impact of recommendation on prices is influenced by the commission rate and product substitutability. These results have significant implications for platform decision making and provide valuable insights into the trade-offs involved in the development of recommendation systems.
... According to Adnan (2020) brand loyalty is an important factor that allows a company to maintain its business and this brand loyalty can also show the emotional feelings a person has towards a brand and leads to continuous purchasing behavior and continuing to use the brand all the time. Tang et al (2023) stated that brand loyalty can come from consumer experiences regarding products that have been previously purchased. Someone who has a view of a good image of a brand will experience the product positively, which will lead to higher loyalty behavior (Chen and Wu, 2022). ...
This research aims to determine the influence of brand image, brand loyalty and word of mouth (WOM) on purchase intention for the Somethinc Brand. The growth of products related to skin care continues to increase. One of the local skincare brands that was founded in 2019 is Somethincnc. This research used a sample of 200 respondents from all over Indonesia. The sampling used was a non-probability sampling method using a purposive sampling technique. Meanwhile, the analysis technique in this research uses structural equation modeling (SEM) with using the AMOS version 24 program. The results there is a positive and significant influence between the variables brand image and brand loyalty, brand loyalty with WOM, and brand loyalty with purchase. intention. Meanwhile, there is an insignificant influence on the brand image variable with WOM and brand image and WOM with purchase intention.
... These programs are designed for customers who have previously purchased from the brand, encouraging them to return used products. Consumers' decisions to participate in take-back programs may be influenced by brand loyalty built from positive past experiences with the products [18]. When consumers, especially loyal ones, are satisfied with their past transac-tions and overall brand experience, they are more likely to repurchase and advocate for the brand [19]. ...
Numerous fashion brands, such as Patagonia, H&M, and Levi’s, offer take-back programs, encouraging customers to return used clothing for monetary incentives so that the brands can resell, recycle, or donate them. Drawing on social exchange theory, this study suggests that consumers are more likely to participate in a loyal brand’s take-back program as they own more items from loyal brands due to repeated purchases. Loyal consumers, viewing this as part of an ongoing relationship with the brand, may participate because they perceive greater benefits than non-loyal consumers. In turn, brands benefit by keeping loyal consumers engaged through product collection and future purchases using coupons. This study examines how brand loyalty affects the perceived benefits of take-back programs, shaping participation intention. It also explores how environmental concern moderates the mediating effect of perceived benefits between brand loyalty and participation intention. Data were collected from 467 U.S. consumers via an online survey. Results revealed that the more loyal consumers were, the greater they perceived economic, environmental, and convenience benefits to be, increasing their intention to participate. Economic benefits were more effective for consumers with low levels of environmental concern, while environmental benefits were more influential for those with high levels of environmental concern.
... Dong et al. (2023) compare the choice between within-brand and cross-brand trade-ins. Tang et al. (2023), on the other hand, investigate the influence of brand loyalty on exclusive and nonexclusive trade-in programs. Their findings indicate that an exclusive trade-in program consistently emerges as the dominant strategy for both firms. ...
The mismatch between supply and demand is a prevailing phenomenon due to fluctuations in market demand. A common practice employed to align capacity with demand is capacity sharing, whereby a firm possessing excess capacity collaborates with others that are incapable of meeting captured demand. This paper investigates the strategic interactions between two competing firms with asymmetric capacities in the presence of capacity sharing. Following some observed phenomena, unilateral consumer switching is allowed once stockout occurs. Two typical capacity-sharing contracts, namely, linear transfer payment (LTP) and revenue sharing (RS), are examined. We show analytically that the presence of capacity sharing can always benefit the firm with insufficient resources. However, the impacts on the firm that is not constrained by capacity under the RS contract depend heavily on the RS rate. We also find that the RS contract outperforms the LTP contract for both firms if the negotiated RS rate is at an intermediate level. The results obtained through the comparison between the scenarios of no capacity sharing, LTP, and RS provide suggestions of much practical value for the operation of capacity sharing.
... Faced with the above challenges, this paper proposes to trade-in via a supplier that has the capability and willingness to process recycling [62][63][64]. This approach has been adopted in several scenarios such as in manufacturing product supply chains or dualchannel supply chains. ...
This paper delves into optimizing the rotation of relief supplies within the relief supply chain system, concentrating on reserve quantity decisions for governments and humanitarian organizations involved in disaster response. By integrating a trade-in strategy with suppliers, it ensures a precise and timely response to the fluctuating demand for relief supplies post-disaster. Utilizing the newsvendor model, optimization theory, and supply chain coordination principles, we developed a comprehensive model that calculates optimal reserve quantities for pre-positioning demanders. It also outlines the expected profit function for suppliers and a robust supply chain coordination model. The findings highlight that optimal stockpiling decisions for relief supplies are heavily influenced by cost parameters, material characteristics, and the relationship between trade-in pricing and market resale values. Notably, higher trade-in prices generally reduce the government’s optimal reserve quantities, impacting strategic decisions within supply chain coordination. This research adds to disaster management literature by offering strategic insights into how coordination and pricing strategies can improve disaster preparedness and response efficiency and effectiveness.
... This, in turn, helps in gaining brand loyalty from users. This brand loyalty often stems from high consumer satisfaction with the company's products and the unique position of these products in the market (Molinillo et al., 2019;Tang et al., 2023). Szymanski et al. (1993) also assert that market share is a critical factor in enhancing a company's profitability. ...
Exploring how SRDI enterprises achieve high‐quality development constitutes a pivotal task for small and medium‐sized enterprises (SMEs) and niche leaders. While prior research primarily concentrated on the influence of innovative policies on SRDI enterprises, it has disregarded the intrinsic propelling forces intrinsic to these enterprises. To bridge this research gap, our study leverages a machine learning model that incorporates 19 feature variables spanning four dimensions—“specialization, refinement, distinctiveness, and innovation”—to anticipate high‐quality development in enterprises. Drawing on a sample of 667 A‐share SRDI‐listed enterprises from 2012 to 2022, and after subjecting the data to preprocessing, the study employs the mean of five machine learning models to predict high‐quality development in enterprises. Moreover, we discern pivotal feature variables and dimensions. Notably, outcomes underscore the paramount significance of market share in achieving high‐quality progress within SRDI enterprises, with refinement emerging as the foremost feature dimension among the four. Moreover, during the three stages delineated by SRDI policies, research and development intensity, equity financing, and market share emerge as the preeminent feature variables within their respective stages.
... In reality, a single manufacturer often provides products to multiple retailers. For instance, the well-known soft drink brand Coca-Cola has over 1,300,000 distribution points globally, resulting in evident competition among these distribution outlets [21,22]. In this context, businesses within the supply chain frequently enhance their competitiveness and expand their market share through various forms of collaboration and mergers [23,24]. ...
This paper discusses how managers adjust their strategies to allocate relevant resources more effectively and maximize economic benefits when major technological changes are predicted for the future. For a supply chain system consisting of a single manufacturer and two competing retailers as the research object. First, random stop model is applied to portray the impact of technological innovation on the decision-making of supply chain members. On this basis, differential game models for supply chain members are constructed based on different cooperation modes, including centralized, decentralized, and retailers alliance. Second, we solve and compare the optimal decision-making, emissions reduction, low-carbon goodwill, and profit levels before and after technological innovation in different modes. Finally, we design a bilateral cost-sharing contract to achieve coordination. Results demonstrate that: (1) Before the success of technological innovation, when a higher probability of success and uplift rate is predicted can incentivize supply chain members' emissions reduction and low-carbon promotion inputs; (2) In the presuccess period of technological innovation, members' independent decision-making (decentralized decision-making) can optimize the retailer's low-carbon promotional inputs under certain conditions. In contrast, the optimality of decentralized decision-making after technological innovation depends only on the influence of competition intensity. (3) The bilateral cost-sharing contract designed in this paper can optimize supply chain-related inputs and performance levels to achieve perfect coordination within the supply chain system, given that specific preconditions are satisfied.
Many governments worldwide offer various types of consumer‐specific subsidy programs, such as a trade‐in subsidy (TS) program that targets existing consumers only, a consumption subsidy (CS) program that covers both new and existing consumers with undifferentiated subsidy levels, or a mixed subsidy (MS) program that targets the two consumer segments with differentiated subsidy levels. However, which program is more beneficial to social welfare and other stakeholders is largely unknown. In this paper, we establish a game‐theoretic model to explore the impacts of these subsidy programs on different stakeholders (i.e., the firm, consumers, the environment, and social welfare). Interestingly, we uncover that the TS and MS programs have equal effectiveness in stimulating demand (collecting old products) from existing consumers, whereas the CS and MS programs have relative advantages in expanding the total demand from both new and existing consumers. We further find that (i) when product durability is low, the flexible MS scheme can lead to a quadruple‐win for all stakeholders, (ii) when product durability is moderate, the MS scheme is better for social welfare and the environment, whereas the CS scheme benefits the firm and consumers more, and (iii) when product durability is high, the MS scheme can achieve a triple‐win for the firm, consumers, and social welfare, whereas the CS scheme is better for the environment. Moreover, we identify the differential impacts of each program on different stakeholders when considering that the earmarked subsidy is limited and a secondary market exists. Our findings not only shed light on why the TS, CS, and MS programs are all likely to be adopted in practice but also provide helpful guidelines for governments aiming to offer a more effective subsidy program.
Prior research mostly focuses on traditional trade-in programs where there is no up-front fee. Motivated by recent industrial practice that firms implement quality differentiated trade-in programs with up-front fees (TF programs), we investigate three types of TF programs: only recycling low-quality old products, only recycling high-quality old products, and recycling low- and high-quality old products. Compared with the traditional trade-in model, the firm sets a lower selling price in TF models. Specifically, when the consumers’ value discount for used products is low, the selling price in the TF model that recycles low- and high-quality old products is the lowest; when the value discount is high, the selling price in the TF models that recycles low- and high-quality old products or only recycle low-quality old products may be the lowest. Interestingly, we find that all types of TF programs lead to lower trade-in rebates for replacement consumers than the traditional trade-in program. The firm with the TF program that recycles low- and high-quality products serves most consumers and charges the highest recycling quantity. Finally, we extend the models and verify the robustness of our main conclusions.
Growing consumer privacy concerns have led firms like HP to introduce trade-in services with privacy protection, while others like ASUS continue to provide trade-in services without such protection. This study focuses on two competitive firms to explore whether they should provide a trade-in service with privacy protection. We categorize replacement consumers into two groups based on their privacy concerns. The first group comprises consumers who have higher privacy concerns and are unwilling to trade in their old products without any privacy protection. The second group comprises consumers who have lower privacy concerns. We find that equilibrium outcomes are influenced by the proportion and behavior of consumers with high privacy concerns, the level of competition, the unit cost of privacy protection, and product durability. Additionally, we observe a prisoner's dilemma where both firms opt to offer a trade-in service without privacy protection under certain conditions, and note that firms may adopt different trade-in strategies to mitigate the cannibalization effect of intensive competition. Interestingly, compared to competitive provision, the exclusive provision of privacy protection services can enhance consumer surplus in a less competitive market, whereas compared to no provision, the exclusive provision of privacy protection can reduce consumer surplus in a highly competitive market. These findings can guide firms in making informed trade-in decisions regarding privacy concerns.
Consumer behaviors profoundly affect platform competition. This study incorporates consumers' reference effect and loyalty into a Hotelling model, examining competition between two online retail platforms: an incumbent platform and an intrusive platform. The intrusive platform can introduce a free shipping service to gain market penetration. Consumers in the market are divided into two types: loyal and disloyal. The former remains insensitive to the incumbent platform's pricing, while the latter exhibits reference behaviors in their purchase decisions. Our primary objective is to investigate the intricate interactions between free shipping and consumer behaviors under two pricing settings. The findings indicate that the higher the proportion of loyal consumers or the stronger the reference effect of disloyal consumers, the more likely the incumbent platform is to set a lower price to capture the market. Moreover, free shipping only affects the operational decisions of the platforms when the reference effect is considered, and it strengthens (weakens) the impact of consumer loyalty (reference effect) on the platforms. The reference behaviors of disloyal consumers will amplify the impact of loyalty on the platforms. Interestingly, platforms always choose sequential pricing, which leads to a Pareto-improvement in their profits. Additionally, while the adoption of free shipping by the intrusive platform intensifies competition between the two platforms, it can result in a Pareto-improvement of their profits.
Manufacturers introduce updated‐generation products to meet intensified competition under trade‐in programs. Based on this phenomenon, we built a two‐period game‐theoretic model, in which the manufacturer sells the old‐generation product during both periods and considers whether to introduce the updated‐generation product in the second period. We find that under a static pricing strategy, if the costs of both products are low, the updated‐generation product's entry increases the old‐generation product's retail price. The manufacturer cannot benefit from introducing the updated‐generation product if the updated‐generation product's cost is high. Under a dynamic pricing strategy, the updated‐generation product entry benefits both the manufacturer and the consumer.
Society has gradually realized that companies’ actions have consequences. Companies can fulfill their accountability to society by disclosing information beyond their financial data, providing better decision making for stakeholders. Therefore, this study aims to investigate the impact of corporate social responsibility (CSR) on earnings persistence (EP) for the moderator roles of operational efficiency and financing cost for the companies listed on the Tehran Stock Exchange. For this purpose, the statistical population consists of 714 firm-year observations from 2014 to 2020 (7 years). A multivariate regression method was used based on the panel data analysis method to test the research hypotheses. The results indicate that corporate social responsibility for earnings persistence has a positive and significant relationship with the moderator role of operational efficiency, but is unrelated to the moderator role of financing cost. The majority of the prior research in this field has focused on developing countries. An international perspective is critical, and this study helps draw a more contextualized picture of sustainability than before.
This study intends to investigate the effects of three important variables on brand loyalty for Scarlett Whitening products among Jakartan consumers: brand image, brand experience, and brand trust. The study used a quantitative methodology and a survey method to examine data from 100 customers who had at least three purchases of the product. Structural Equation Modeling (SEM) was used to process the data, and the results made it abundantly evident that all three variables greatly affect brand loyalty. The research is helpful for both corporations and academic scholars. For academics, it offers a well-organized overview of the factors influencing brand loyalty, acting as a valuable starting point for further study. Additionally, it implies that future study should think about varying the research factors and increasing the sample size to obtain more diverse results. The findings provide critical consumer behavior insights for businesses, particularly Scarlett Whitening, and emphasize the necessity to concentrate on enhancing brand image, experience, and trust to increase customer loyalty. The study paves the way for future research that will be more thorough and serves as a roadmap for efficient brand management tactics.
Some enterprises recently start to offer the flexible trade-in option to attract customers from competitors, in contrast to the simple one that only allows them to return used products to the same manufacturers for new. Based on analytical and numerical analyses, this study compares the environmental impacts of two trade-in strategies (simple versus flexible) in combination with different carbon tax policies. From the perspective of consumer switching behaviour, a Hotelling model with two market segments is established. Under the flexible trade-in strategy, the carbon emission of enterprises turns out to be significantly higher than that under the simple trade-in strategy. An appropriate carbon tax policy, especially with preferential tax rates on green products, is capable of guiding enterprises to choose a more environment-friendly trade-in strategy included in the model. The findings fill the research gap in comparing the pros and cons of simple and flexible trade-in strategies in terms of sustainable development, and provide managers and policy-makers the insights on how to promote the healthy development of the remanufacturing industry with trade-in strategizing and carbon taxation.
Presently, many firms are implementing trade-in programs to promote the sale of new products and collect used products. Furthermore, firms sell the used products to the secondary market to avoid the cannibalization problem between new and remanufactured products. This paper aims to explore how the coexistence of the secondary market and trade-in program affects firms’ decisions on quality choice, prices, and trade-in rebate. To this end, we propose a stylized model that captures the features of the secondary market and trade-in program. Further, we consider three models, namely no trade-in program and secondary market (i.e., benchmark case), trade-in program without secondary market and trade-in program with secondary market. We obtain the optimal outcomes under each case via optimization theory. By comparing to the benchmark case, we find that the firm prefers to reduce product quality level and selling price when the trade-in program exists solely. However, if the trade-in program exists together with the secondary market, the firm prefers to increase product quality when the maximal customers’ willingness to pay in the secondary market is high. Otherwise, the firm prefers to lower product quality.
Introducing proprietary parts to gain a competitive edge is a well-known, yet poorly understood strategy original equipment manufacturers (OEMs) adopt. In this paper, we consider an OEM who sells new products and competes with an independent remanufacturer (IR) selling remanufactured products. The OEM contemplates proprietary parts to manage the secondary market for remanufactured products. Thereby, the OEM designs its product to balance the trade-off between the cost of proprietariness and the extra income from selling the proprietary spare parts to the IR. Deterring market entry by the IR through prohibitively pricing the proprietary spare parts, an OEM strategy observed in several industries, is only optimal when the willingness-to-pay for remanufactured products is low. Otherwise, the OEM benefits more from sharing the secondary market profits with the IR through the use of proprietary parts. Finally, we find that the OEM can also use proprietary parts to strategically deter entry by the IR, discouraging her from collecting cores. This can support the OEM’s decisions to engage in remanufacturing even in the case of a collection cost disadvantage. While the introduction of proprietary parts is detrimental to both IRs and consumers, we show that for consumers such loss is reduced when the OEM engages in product remanufacturing.
With behavior-based pricing (BBP), firms use customers’ purchase history data to price discriminate between past and new customers. Prior research has examined BBP in a non-channel setting. In this paper, we investigate BBP in a channel setting in which manufacturers sell to customers through exclusive retailers. We examine how channel members’ adoption of BBP affects wholesale and retail prices, profits, consumer surplus, and social welfare. We find that BBP decreases channel members’ profits when retailers use BBP and manufacturers use uniform pricing. However, BBP increases channel members’ profits when manufacturers and retailers use BBP. In addition, BBP by retailers alone increases consumer surplus, whereas BBP by manufacturers and retailers decreases consumer surplus. When manufacturers also use BBP, BBP decreases social welfare to a greater degree than when only retailers use BBP. Furthermore, when manufacturers cannot use BBP, their profits are higher with long-term wholesale price contracts. When manufacturers can use BBP, short-term wholesale price contracts yield higher profits for manufacturers and retailers.
The online appendix is available at https://doi.org/10.1287/mksc.2017.1070 .
A little-understood phenomenon of customer reward programs is the prevalent use of finite reward expiration terms. We develop a theoretical framework to investigate the economic rationale behind this phenomenon and the trade-off between short and long expiration terms. In our model, a monopolistic firm sets the expiration term, along with the price and reward size, and interacts with consumers over an infinite horizon. Consumers are heterogeneous in shopping probabilities and product valuations and forward-looking in making purchase decisions. We find that a customer reward program with a finite expiration term can increase firm profits when (i) the valuation difference within the consumer population is intermediate and (ii) the shopping probabilities and valuations are negatively correlated among consumers. Several model extensions confirm the robustness of these results. Finally, we conduct an empirical investigation on the reward program practice of the top 100 U.S. retailers, which provides directional support for several key theoretical predictions.
This paper was accepted by Gad Allon, operations management.
Firms tracking consumer purchase information often use behavior-based pricing (BBP), i.e., price discriminate between consumers based on preferences revealed from purchase histories. However, behavioral research has shown that such pricing practices can lead to perceptions of unfairness when consumers are charged a higher price than other consumers for the same product. This paper studies the impact of consumers’ fairness concerns on firms’ behavior-based pricing strategy, profits, consumer surplus, and social welfare. Prior research shows that BBP often yields lower profits than profits without customer recognition or behavior-based price discrimination. By contrast, we find that firms’ profits from conducting BBP increase with consumers’ fairness concerns. When fairness concerns are sufficiently strong, practicing BBP is more profitable than without customer recognition. However, consumers’ fairness concerns decrease consumer surplus. In addition, when consumers’ fairness concerns are sufficiently strong, they reduce inefficient switching and improve social welfare.
This paper was accepted by J. Miguel Villas-Boas, marketing.
Advertising is a crucial tool for demand creation and market expansion. When a manufacturer uses a retailer as a channel for reaching end customers, the advertising strategy takes on an additional dimension: which party will perform the advertising to end customers. Cost sharing (“cooperative advertising”) arrangements proliferate the option by decoupling the execution of the advertising from its funding. We examine the efficacy of cost sharing in a model of two competing manufacturer-retailer supply chains who sell partially substitutable products that may differ in market size. Some counterintuitive findings suggest that the firms performing the advertising would rather bear the costs entirely, if this protects their unit profit margin. We also evaluate the implications of advertising strategy for overall supply chain efficiency and consumer welfare. Keywords: manufacturer advertising, retailer advertising, cost sharing, supply chain competition, game theory
Most durable products have two distinct types of customers: first-time buyers and customers who already own the product, but are willing to replace it with a new one or purchase a second one. Firms usually adopt a price-discrimination policy by offering a trade-in rebate only to the replacement customers to hasten their purchase decisions. Any return flow of products induced by trade-in rebates has the potential to generate revenues through remanufacturing operations. In this paper, we study the optimal pricing/trade-in strategies for such durable, remanufacturable products. We focus on the scenario where the replacement customers are only interested in trade-ins. In this setting, we study three pricing schemes: (i) uniform price for all customers, (ii) age-independent price differentiation between new and replacement customers (i.e., constant rebate for replacement customers), and (iii) age-dependent price differentiation between new and replacement customers (i.e., age-dependent rebates for replacement customers). We characterize the roles that the durability of the product, the extent of return revenues, the age profile of existing products in the market, and the relative size of the two customer segments play in shaping the optimal prices and the amount of trade-in rebates offered. Throughout the paper we highlight the operational decisions that might influence the above factors, and we support our findings with real-life practices. In an extensive numerical study, we compare the profit potential of different pricing schemes and quantify the reward (penalty) associated with taking into account (ignoring) customer segmentation, the price-discrimination option, return revenues, and the age profile of existing products. On the basis of these results, we are able to identify the most favorable pricing strategy for the firm when faced with a particular market condition and discuss implications on the life-cycle pricing of durable, remanufacturable products.
One-to-one promotions are possible when consumers are individually addressable and firms know something about each customer's preferences. We explore the competitive effects of one-to-one promotions in a model with two competing firms where the firms differ in size and consumers have heterogeneous brand loyalty. We find that one-to-one promotions always lead to an increase in price competition (average prices in the market decrease). However, we also find that one-to-one promotions affect market shares. This market-share effect may outweigh the effect of lower prices, benefiting the firm whose market share increases. Our results suggest that of two firms, the firm with the higher-quality product may gain from one-to-one promotions. Our model also has implications for the phenomenon of customer churn, where consumers switch to a less preferred brand due to targeted promotional incentives. We show that churning can arise optimally from firms pursuing a profit-maximizing strategy. Instead of trying to minimize it, the optimal way to manage customer churn is to engage in both offensive and defensive promotions with the relative mix depending on the marginal cost of targeting.
A exists in many industries (e.g., newspaper publishing, media, software) in which a seller sells both a primary and a secondary product (e.g., a newspaper publisher sells newspapers to readers and advertising space to advertisers), and the value of the secondary product depends on the size of the user base of the primary product. This paper examines the competitive implications of asymmetric customer loyalty in such markets. In traditional markets, an advantage in customer loyalty generates a profit advantage. We show here, however, that in the presence of a cross-market network effect, a midlevel of loyalty advantage in the primary product market can lead to an overall profit disadvantage. This surprising result is derived from the interdependence of the two markets, whereby a profit in one market may be gained at the cost of the other, and by the positive relationship between a larger loyalty segment and a higher opportunity cost of price competition in the product of the primary market. Extending our model to a two-period entry game also shows that under certain conditions, the entrant with disadvantage in customer loyalty can outperform the incumbent in profit and market share. This result suggests that asymmetry in customer loyalty can be a source of “first-mover” advantage or disadvantage.
Two concepts of brand loyalty are defined, “inertial” brand loyalty resulting from time lags in awareness, and “cost-based” brand loyalty resulting from intertemporal utility effects. Their market level implications are formally derived in a continuous time model. It is found that inertial brand loyalty leads to equilibria with price dispersion, while cost-based brand loyalty also may allow single price equilibria. In all cases, as brand loyalty vanishes, so does the difference between the average trading price and the price which obtains with no brand loyalty. Consistent with empirical results, the theory predicts that the relationship between market share and performance is positive in cross-sectional studies, but flat in time-series studies. The theory is also consistent with the view that market share is an asset in itself. After developing the theory, several strategic implications are drawn. In the end, some questions for further theoretical and empirical research are raised.
As high-tech markets mature, replacement purchases inevitably become the dominant proportion of sales. Despite the clear importance of product replacement, little empirical work examines the separate roles of adoption and replacement. A consumer's replacement decision is dynamic and driven by product obsolescence because these markets frequently undergo rapid improvements in quality and falling prices. The goal of this paper is to construct a model of consumer product replacement and to investigate the implications of replacement cycles for firms.
To this end, I develop and estimate a dynamic model of consumer demand that explicitly accounts for the replacement decision when consumers are uncertain about future price and quality. Using a unique data set from the PC processor industry, I show how to combine aggregate data on sales and product ownership to infer replacement behavior. The results reveal substantial variation in replacement behavior over time, and this heterogeneity provides an opportunity for managers to tailor their product introduction and pricing strategies to target the consumers of a particular segment that are most likely to replace in the near future.
Firms sometimes try to "poach" the customers of their competitors by offering them inducements to switch. We analyze duopoly poaching under both short-term and long-term contracts assuming either that each consumer's brand preferences are fixed over time or that preferences are independent over time. With fixed preferences, short-term contracts lead to poaching and socially inefficient switching. The equilibrium with long-term contracts has less switching than when only short-term contracts are feasible, and it involves the sale of both short-term and long-term contracts. With independent preferences, short-term contracts are efficient, but long-term contracts lead to inefficiently little switching.
This article examines a two-period differentiated-products duopoly in which consumers are partially "locked in" by switching costs that they face in the second period. While these switching costs naturally make demand more inelastic in the second period, they also do so in the first period, because consumers recognize that a firm with a higher market share charges a higher price in the second period and hence is a less attractive supplier to which to be attached. Prices are lower in the first period than subsequently, because firms compete for market share that is valuable later. But prices may be higher in both periods than they would be in a market without switching costs.
For generation products characterized by frequent releases of new versions, when a new version is introduced to the market, the current version usually still has a remaining useful life. This creates a challenge for a firm to manage used product collection and upgraded product introductions at the same time, especially with the presence of a secondary market. This paper develops an analytical model to study the design and evaluation of two widely adopted collection policies for used products. Specifically, depending on whether a monetary reward for returning used products is associated with further purchases, we examine both unconditional (buyback) and conditional (trade‐in) collection policies that take place in practice. We find that, in the absence of a secondary market, a conditional collection policy can outperform an unconditional one when the base product is durable and the residual value that the manufacturer can obtain after collection is intermediate. However, when an independent secondary market exists, allowing customers to trade used products with each other, any conditional policy cannot outperform the optimal unconditional policy. In particular, the two policies generate the same profit when the residual value is low; otherwise, the unconditional policy dominates as it effectively mitigates the cannibalization of the upgraded product sales by collecting more used products and reducing the supply to the secondary market. We also discuss the environmental impacts of these two collection policies. Our study helps to understand the impact of strategic customer behavior and the secondary market on the choice of used product collection policies, and provides manufacturers with guidance on the design of the optimal collection policy. This article is protected by copyright. All rights reserved
A continuous supply of used products ensures large-scale remanufacturing. Manufacturers can delegate used product collection to third-party collectors (3PCs) that provide a trade-old-for-cash (TOC) program, in addition to collecting used products through a trade-old-for-new (TON) program. However, few studies have investigated the interactions between collection delegation and channel structure in a supply chain. To fill this gap, we develop game-theoretic models in a supply chain under traditional retail channel and dual-channel structures to explore whether and when the manufacturer adopts the collection delegation policy and examine the optimal channel choice for trade-ins. Our finding shows that the manufacturer always benefits from collection delegation, but the retailer would be worse off from such delegation in certain cases. To be specific, under the retail channel structure, collection delegation has no impact on the retailer when the salvage value of used products is relatively low, whereas it hurts the retailer when the salvage value is relatively high. However, under the dual-channel structure, collection delegation never affects the retailer. Moreover, we find that the manufacturer's channel choice depends on the consumer acceptance of the direct channel and the salvage value of used products. We further consider the case that the manufacturer does not introduce the TON programs to explore the effects of TON and the case that the new and remanufactured products are sold at different retail prices to examine the equilibrium strategies. Our results can provide useful managerial insights for decisions-makers who face the choice of collection delegation under different channel structures.
To retain old customers and promote sales, firms offer trade‐in programs in which consumers bring in an old product and receive a trade‐in rebate when buying a new one. However, after buying the new product, the consumer who has traded in (the “trade‐in consumer”) may return the new product and claim a refund for it if she/he is not satisfied with it. In this situation, under a full‐trade‐in‐return (FTR) policy, trade‐in consumers receive a generous refund that includes a trade‐in‐rebate for them to redeem if they purchase again in the future. Alternatively, some firms have a partial‐trade‐in‐return (PTR) policy under which trade‐in consumers who return a newly purchased product only receive a refund for the amount of money they paid (without including the trade‐in‐rebate). In this study, we build stylized analytical models to explore the optimal choice of a trade‐in‐return policy. We find that there is no difference to the firm between an FTR and a PTR policy when no trade‐in consumers keep unsatisfactory new products. In the case of a relatively medium residual value of the used product, FTR is always the better choice for the firm. When some trade‐in consumers keep unsatisfactory new products, we show that FTR (PTR) is the better choice when the used product’s durability is sufficiently low (high). We also show that the firm may not reduce its trade‐in rebate when the “average new product satisfaction rate” of trade‐in consumers increases. In the extended models, we find that, the firm is more likely to prefer PTR to FTR when there is online‐offline dual channel retailing mode, but tends to prefer FTR to PTR when there is a competitive second‐hand market, and should make the same optimal TIR policy when there are two selling periods.
Customer loyalty programs are often used by retailers as an important marketing tool. As an essential element of loyalty programs (LPs), the reward amount invested by the retailer is often linked to retailer's profit and customer behavior. We consider a retailer who sells a type of product in two periods to strategic customers. The retailer makes inventory ordering and loyalty program investment decisions. Customers decide whether to purchase immediately (in period 1) to receive the product and reward, or to wait for a markdown discount but face the risk of stockout. We have focused on three main questions: (1) How does the loyalty reward investment decision impact strategic customers’ behavior? (2) What are the optimal decisions and profits for the retailer when investing in a loyalty program? (3) What are the factors influencing the reward investment decision? We find that investing in the loyalty program induces more customers to make an early purchase, leading to a higher inventory ordering decision and more profit for the retailer. The benefits from reward investments are significantly affected by the product's cost and customers’ valuation of the product. Our results shed light on the reward investment decision of LPs. For products with high profit margins and market-determined prices (valuation approximates price), the retailer should invest in a loyalty program to achieve better profits.
We model optimal firm pricing and advertising intensity strategies under both uniform and targeted advertising regimes in a duopoly market in which firms have asymmetric loyal market shares and must engage in costly informative advertising to attract customers. In addition to loyal customers who only purchase from their preferred firm, there are shoppers who purchase at the lowest advertised price. Under uniform advertising, prices are communicated to the entire market while under targeted advertising the firm can limit advertising to its own loyal customers or to its loyal customers and the shoppers. Our main results explore the strategic trade‐off between advertising intensity and price competition and demonstrate how optimal firm pricing, advertising strategies, and equilibrium outcomes differ with the relative size of a firm's loyal market and with the advertising regime. We also show that targeted advertising may or may not increase social welfare, and that it increases consumer surplus only if the cost of advertising is sufficiently high. In addition, it is possible that the firm with the larger loyal market earns lower profits under targeted rather than uniform advertising. Notwithstanding this, in an extension we show firms generally have an incentive to invest ex‐ante in targeting technology.
In modern manufacturing operations, green technologies are becoming increasingly popular. Meanwhile, trade-in programs are widely implemented to boost sales and enhance product recycling, which would benefit the environment. It is widely observed that many companies implement the green technology (GT) and trade-in program together. However, whether this act is always beneficial to the environment is unclear. We hence build analytical models to address this issue. To conduct a comprehensive study, we follow the real-world practices and examine both the retailer collects (R-collect) and manufacturer collects (M-collect) scenarios in a supply chain. Our results show that the "R-collect scheme with GT" leads to the highest levels of supply chain profit and social welfare but more emissions may be generated. Besides, implementing GT does not always benefit the environment in both R-collect and M-collect schemes. Considering from the environment perspective, we interestingly show that governments should advocate the "M-collect with GT" and "R-collect without GT" schemes. Correspondingly, to motivate both the supply chain and consumers to accept the advocated strategies, we characterize the carbon tax and subsidy based "carrot-and-stick" policy. We further explore in the extended models and show that our main results hold under competition, when the emission abatement cost takes different analytical forms, and when consumers are environmentally conscious.
Applications of government subsidies to speed up consumer trade‐ins of used products can be commonly observed in practice. This paper studies the design of such trade‐in subsidy programs and aims to provide implementable insights for practice. In particular, we focus on two open problems in the literature, (i) how to optimally allocate the subsidy budget among the multiple products covered by the trade‐in program, and (ii) how to most effectively utilize the assigned budget to incentivize consumer trade‐ins for each product. We develop a three‐stage Stackelberg game model that captures the essence of the interaction between the government’s subsidy decision, the manufacturer’s trade‐in rebate decision, and the consumer’s product replacement decision. We show that a sharing subsidy scheme under which the government subsidy is proportional to the manufacturer’s rebate is more effective in encouraging consumer trade‐ins than fixed‐amount subsidies. Moreover, a product with a higher environmental impact, a larger market size, a longer lifespan, or a lower value to consumers typically demands a larger subsidy budget allocation. We further use our results to derive a simple proportional budget allocation rule that can provide robust and near‐optimal performance. We illustrate our results by a case study based on the “old‐for‐new” program in China that subsidizes home appliance trade‐ins. Our results indicate that policy makers should pay attention to the correlation between government subsidies and manufacturer’s rebate as well as key product and market characteristics when designing a subsidy scheme for trade‐in programs.
We study recycling technology choice, a critical factor that has received little attention in the context of extended producer responsibility, and its interaction with product design‐for‐recycling in driving the environmental benefits of recycling systems. Collective recycling systems have long been criticized for restricting the environmental benefits of extended producer responsibility because of free riding issues among producers, which can undermine incentives for product design‐for‐recycling. We revisit and refine this assertion by analyzing the interaction between recycling technology and product design‐for‐recycling choices. We develop game‐theoretic models where producers and processors decide on product design‐for‐recycling and recycling technology choices, respectively. We then compare the equilibrium benefits of recycling in collective and individual systems. The key result in this study is that when recycling technology choice is taken into account, collective recycling systems can lead to higher environmental and economic benefits than individual recycling systems. This is because collective recycling systems provide stronger incentives for recycling technology improvements. In turn, these improvements can help overcome the drawbacks associated with inferior product design‐for‐recycling outcomes caused by free riding concerns among producers in collective recycling systems. In light of these results, we posit that an exclusive focus on product design‐for‐recycling to assess the environmental benefits of extended producer responsibility‐based recycling systems may need scrutiny. Producers and policy makers may need to evaluate recycling systems with respect to the incentives they provide for both product design‐for‐recycling and recycling technology improvements.
We study the interaction between the design of a premium-status loyalty program, revenue management, and strategic consumer behavior. Specifically, we consider a contemporaneous change where firms across several industries switch their loyalty programs from quantity-based toward spending-based designs. This change has been met with fierce opposition from the media and consumers. Building on the microfoundations of strategic, forward-looking, and status-seeking consumer behavior, we endogenize strategic consumer response to firms’ pricing and loyalty program design decisions, and we characterize conditions under which, by coordinating these decisions, firms can benefit from strategic consumer behavior. We further show that by switching to a spending-based design, firms can benefit from strategic behavior even more, under broader conditions, and in a Pareto-improving way. Finally, we also analyze combined designs, which utilize a combination of quantity and/or spending requirements, and show how they can be used to better manage the transition toward spending-based designs, possibly minimizing negative consumer reactions.
This paper was accepted by Serguei Netessine, operations management.
As observed in real world practices, trade-ins can be offered by either the manufacturer or the retailer. The party offering the trade-in program faces the trade-off between the fixed trade-in cost incurred and the additional revenue generated. By conducting a game-theoretic study, we analytically explore in this paper the optimal choice of trade-in provider in a dyadic supply chain with a single manufacturer and a single retailer. We show that the trade-in models can bear a much higher manufacturing cost and induce a higher new product sale than the benchmark case without trade-ins. It is possible that both the manufacturer and retailer prefer to undertake the trade-in program, which would lead to a conflict; or both firms prefer to be a free-rider instead of being the trade-in provider, which would fall into a prisoner's dilemma. Moreover, the powerful manufacturer has an incentive to delegate the trade-in service to the retailer when facing a higher fixed trade-in cost, but the delegation option is always worse off for the retailer compared to the scenario in which the retailer provides trade-ins by herself. We also show that the trade-in scenarios always benefit the environment and consumers of the replacement segment, but hurt the primary segment consumers. The social welfare would actually be higher in the scenarios with trade-ins if the fixed trade-in cost is relatively low and the residual value of old products is relatively high.
New trade-in services such as online trade-in, trade-in on e-commerce platforms and omni-channel trade-in, are emerging due to the development of e-commerce. To offer these new trade-in services, firms need to determine the optimal product price and rebate and decide whether to pay the rebate with a gift card (G) or cash (C). To address these challenges for firms, our paper considers a firm selling a new product to new consumers and offering a trade-in service to replacement consumers. In addition, we develop theoretical models to examine the optimal decisions in the cases of G and C and explore the optimal payment for the rebate. We reveal that G payment is a better choice for the firm only if the used product residual value is relatively low and the market size ratio between replacement and new consumers is relatively low; otherwise, the firm should choose C payment. Interestingly, replacement consumers’ preferred trade-in rebate payment (i.e., C payment) leads a lower trade-in demand than G payment and C payment may be harmful. In the extension, we consider a firm with online and offline sales channels and different types of replacement consumers who own different used products, and find that our main results regarding the optimal rebate payment still hold. Moreover, we find that in the context of a used product with a relatively medium residual value, firms with online and offline sales channels are more likely to choose G than firms with one sales channel; otherwise, firms are more likely to choose C.
Trade‐in programs for electronics products, e.g., mobile phones, have been increasingly popular. These programs target at customers (we call them “bargainers”) who seek to salvage or upgrade their old devices. There are two widely adopted trade‐in options: trade‐in‐for‐upgrade and trade‐in‐for‐cash. In this paper, we consider a firm who offers both trade‐in options, i.e., a hybrid trade‐in program, to acquire old products, then refurbishes and resells them, together with new product over a finite selling horizon. The bargainers choose which option to trade in their products while new customers decide whether to buy a new product or a refurbished one. When the selling price of new product is exogenous, we derive the optimal trade‐in prices of old product and resale price of refurbished product. We show that the optimal trade‐in and resale policies are of a threshold‐type and trade‐in‐for‐upgrade should be offered with a premium refund (compared to trade‐in‐for‐cash) only in early periods of the selling horizon. We further consider two variants of the above base model. In the first extension, the new product has a fixed amount of initial inventory and is not replenishable during the selling horizon. In the second extension, the new product price can also be determined by the firm. Our numerical results demonstrate that the hybrid trade‐in program could generate significantly more profit than either upgrade‐only or cash‐only trade‐in program.
As environmental regulations are becoming increasingly strict, firms are setting up remanufacturing systems and using trade-in programmes that take back used products to stimulate demand. Meanwhile, they are starting to sell remanufactured products to secondary markets to avoid the problem of cannibalization. In this study, we establish a two-period model in which a monopolistic original equipment manufacturer (OEM) offers a trade-in programme to improve sales and collect used products. At the same time, the OEM can elect to remanufacture these used products and resell them to a secondary market. The results for the static pricing case show that the two primary driving factors, customers’ maximum willingness to pay into the secondary market and production cost, produce different outcomes. Depending on the relationship between these two key factors, seven outcomes exist. Specifically, although all used products are collected and the secondary market is available, the OEM may not remanufacture or may partially remanufacture. We study the above problem using a dynamic pricing case in which the product price during the second period is different from that in the first period. We find that the OEM prefers to offer a menu such that all rather than just some holders participate in the trade-in programme. Furthermore, in the dynamic pricing case, all rather than some of these used products are remanufactured, in contrast with the static pricing case. However, the layout of the OEM's trade-in and remanufacturing policies under the static pricing case is similar to that under the dynamic pricing case. We further extend our study to include a competitive situation and find that the results for the core model can essentially be reproduced under competition.
Nowadays, consumers play a central role in shaping the right retailing strategy. Motivated by the popularity of trade-in-for-upgrade (TIFU) programs in consumer electronics industries, this study adopts a multi-methodological approach to comprehensively explore TIFU-related behavioral pricing and market competition challenges. Grounded upon consumer psychology and behavior theories, this study develops a generalized consumer choice behavior model which takes into account the potential effect of reference dependence choice behavior. A behavior-grounded analytical model is established. Both analytical and quantitative empirical analyses using multiple empirical data sources are conducted. One distinctive feature of the proposed model is the conceptualization of vendor-buyer collaborative value orientation (termed as syncretic value orientation in this paper) in business objective functions, where we advocate that the extended consumer responsibility (ECR) should be incorporated into the modeling and analysis. In particular, this study derives a generalized form of the analytical model to determine the syncretic value-oriented prices and trade-in rebates under TIFU market competition. The results further reveal that involving the syncretic value in business objectives favors not only a price-leading firm’s expansion of market share but also gaining additional profits with a low-price-low-rebate strategy. Utilizing a low-price-high-rebate strategy, a price follower can seize the opportunity to lead in market share when the price leader solely sets profit maximization as its goal in a competitive market.
Many companies are implementing trade-in programmes through multiple channels. This may ultimately lead to fiercer channel conflict and competition. Few studies have explored firms’ optimal trade-in policies in such an environment. To fill the gap, we build a theoretical model that captures the features of a dual-channel situation in which a manufacturer implements a trade-in programme through retail and direct channels simultaneously. Compared with the case in which there is no trade-in rebate, the results show that a trade-in programme can intensify or mitigate the double marginalisation effect if the retailer can initially decide the trade-in rebate in the retail channel. This significantly relies on market segmentation. However, when the retailer cannot decide the trade-in rebate in the retail channel, the trade-in programme aggravates the double marginalisation effect. Second, the trade-in rebate offered by the retailer may be higher than the subsidy offered by the manufacturer, as long as the retailer can autonomously decide the trade-in rebate in the retail channel. Furthermore, we find that both the manufacturer and retailer prefer to obtain the right to autonomously decide the trade-in rebate in the retail channel, but the supply chain prefers that the manufacturer do it. Some numerical examples are provided to further explain these outcomes.
Durable goods firms often create product lineups to provide a clear upgrading path as consumers make replacement decisions. Consumers can upgrade a little (i.e., spend a bit more than last time) or a lot (i.e., spend substantially more). However, the factors affecting the degree of such vertical “moving up” have received limited scholarly attention. In particular, little is known about how trade-in characteristics and the marginal costs–benefits of the new purchase influence the degree of upgrade. The authors use 320,000 Cash for Clunkers automobile transactions to provide the first examination of how mental accounting surpluses from trade-in ownership time and trade-in windfall, in addition to brand loyalty, affect the degree of upgrade. The authors find that trade-in ownership time and brand loyalty enhance the replacement’s degree of upgrade. However, trade-in windfall size has a negative effect, revealing the downside of this common promotional practice. Two experiments and additional dealer data indicate that this finding is robust to different economic conditions. Thus, these findings provide valuable new guidance for durable goods firms to facilitate the degree to which consumers upgrade.
B2C platforms are increasingly implementing trade-in programs to boost sales. Most of these platforms have adopted dual-format retailing model including both self-run stores and third-party stores. Under trade-in program framework, B2C platforms will determine the optimal trade-in rebate, and whether to offer the rebate to consumers with gift card (GC) or cash coupon (CC). GC can only be used in self-run stores, while CC can be used in both stores. To entice more consumers to trade-in products, platforms may launch trade-in efforts in the market. To address such decision-making challenges, we consider a B2C platform who owns a self-run store and hosts a third-party store, and examine the optimal trade-in strategy for the platform by developing four theoretical models. We first present two models without considering trade-in efforts, i.e., one model regarding GC payment, and one model regarding CC payment, and then extend them by taking trade-in efforts into consideration. Some interesting findings and insights are achieved. In particular, we find that both GC and CC do not always benefit the platform. Interestingly, offering high quality and low selling price for products in both the self-run store and the third-party store are also not always beneficial to the platform. So is the competition between both stores. Launching trade-in efforts may lead to a lower trade-in rebate but a higher profit for the platform. A counterintuitive finding is obtained that a higher gift card redemption rate is not beneficial to the platform, and vice versa.
We consider manufacturer rebate competition in a supply chain with two competing manufacturers selling to a common retailer. We fully characterize the manufacturers’ equilibrium rebate decisions and show how they depend on parameters such as the fixed cost of a rebate program, market size, the redemption rate of rebate, the proportion of rebate-sensitive consumers in the market and competition intensity. Interestingly, more intense competition induces a manufacturer to lower rebate value or stop offering rebate entirely. Without rebate, it is known that more intense competition hurts the manufacturers and benefits the retailer. With rebate, however, more intense competition could benefit the manufacturers and hurt the retailer. We find similar counter-intuitive results when there is a change in some other parameters. We also consider the case when the retailer subsidizes the manufacturers sequentially to offer rebate programs. We fully characterize the retailer's optimal subsidy strategy, and show that subsidy always benefits the retailer but may benefit or hurt the manufacturers. When the retailer wants to induce both manufacturers to offer rebate, he always prefers to subsidize the manufacturer with a higher fixed cost first. Sometimes the other manufacturer will then voluntarily offer rebate even without subsidy. This article is protected by copyright. All rights reserved.
Inspired by practices of the Chinese household appliance industry, we explore interaction of channel structure with price-and quality-based competition between two manufacturers who are asymmetric on customer loyalty. Each manufacturer sells its product through either a decentralized channel or an integrated channel to customers and faces demand depending on quality, retail price, and customer loyalty. We divide the market into two types: The price-sensitive market and quality-sensitive market, and find that the equilibrium depends on the market type. Different from the literature, in a quality-sensitive market with higher market innovation desire, the pure integration structure is likely to be in equilibrium, and furthermore, the manufacturer with higher loyalty can earn higher profit; Otherwise, the pure decentralization structure is in equilibrium. So, a manufacturer benefits the most from consumers’ higher quality valuation, strong loyalty, and channel centralization.
By offering to trade-in one unit of old product at a discounted price while selling new products, “exchange-old-for-new”(EON) programs have been considered efficient ways of expanding market for durable goods. Starting from the choice behavior of customers, this paper studies optimal pricing and remanufacturing decisions for firms that adopt the EON program. Specifically, considering a supply chain that consists of one manufacturer and one retailer, we investigate two business models: (i) In the manufacturer-initiated scenario, the manufacturer launches an EON program and owns all the old items that are returned; he remanufactures all (or a portion) of the old items and sells them to a secondary market. (ii) In the retailer-initiated scenario, any old items that are returned belong to the retailer; she remanufactures the old items and sells them to the secondary market. An in-depth comparison between the optimal decisions in the two models is conducted in this paper. We show it is possible that a firm may be even more profitable from being a “free-rider”, instead of offering an EON program by himself/herself. Based on a centralized supply chain as a benchmark, an exchange-discount-sharing contract is proposed to coordinate the supply chain and to improve the overall welfare of customers. Numerical experiments are conducted to show the profit impact for the supply chain members, which uncover some interesting managerial insights for the proper adoption of the most efficient EON programs.
We study behavior-based pricing (BBP) in a vertically differentiated model. Vertical differentiation is innately asymmetric because all customers prefer the higher-quality product when prices are equal. This asymmetry causes BBP to have different properties than symmetric horizontally differentiated models. We highlight two dimensions that affect the analysis: the role of quality-adjusted cost differences between the firms and the role of consumer discounting relative to firm discounting. In the second period, consistent with the prior literature, we find that there are conditions based on market shares and quality-adjusted costs under which either the low-quality firm or the high-quality firm—but not both—will reward its current customers with lower prices than it charges to new customers. We then consider whether these conditions can arise in a two-period equilibrium. We find that if consumers sufficiently discount the future periods, then firms at enough of a competitive disadvantage will reward their customers: i.e., the low-quality firm will reward its current customers if the quality-adjusted cost differential between the two firms is small, while the high-quality firm will reward its current customers if this cost differential is large. Conversely, we find that if consumers do not discount the future very much, then the firm at a competitive disadvantage (i.e., a low-quality firm competing against a low-cost high-quality firm, or a high-quality firm that has very high costs) can earn greater profits with BBP than without BBP, although there are cases where both firms may benefit from BBP.
This paper was accepted by J. Miguel Villas-Boas, marketing.
An exchange promotion allows consumers to turn in an old good and receive a discount toward the purchase of a new product. The old good that is turned in can either be within the same category as the new good or it may be in a different category. For example, one can turn in an old CD player to count toward a new CD player (a within-category exchange or traditional trade-in) or toward a new television (a cross-category exchange). This paper studies both within-category and multicategory exchange promotions and analyzes their similarities and differences. In a competitive setting with two firms, we model exchange promotions and establish the equilibrium outcomes. We find that categories in which consumers have a high level of waste aversion are more likely to have multicategory exchange promotions rather than within-category or no promotions. Multicategory exchange promotions can increase both consumers’ replacement purchases and their new purchases. Interestingly, we also find that strategic considerations can lead to a prisoner’s dilemma outcome in which neither firm offers any kind of exchange promotion. However, waste aversion and multicategory exchange promotions can give firms stronger incentives to get out of the prisoner’s dilemma outcome.
We study a firm that makes new products in the first period and collects used products through trade-in, along with new product sale, in the second period. To conduct a convincing analysis, we initially evaluate the problem in a duopoly situation in which one firm (firm A) implements trade-in and the other one (firm B) does not. We subsequently introduce the competitive environment in a two-period planning horizon to identify thresholds that determine the trade-in operations, and then derive the equilibrium decisions of the resulting scenarios. We characterize the optimal production quantities that are associated with parameter b (the sum of used product salvage value and government subsidy) in the Nash equilibrium. Results indicate that adopting trade-in could bring competitive advantage for firm A in terms of market share and profit. If the new product sale is comparatively profitable, then the trade-in firm may forgo some of the collection margin by raising the trade-in rebate and selling additional units to increase new product sale in the second period. Moreover, the total collection quantity does not always increase with government subsidy. We consequently expand the model to the case where both firms compete in trade-in and derive the corresponding decision space of the duopoly firms. Finally, we explore the effect of adopting trade-in on consumer surplus and compare it in the two models. © 2015 Elsevier B.V. and Association of European Operational Research Societies (EURO) within the International Federation of Operational Research Societies (IFORS). All rights reserved.
To entice consumers to purchase both current and next generation products, many manufacturers and retailers offer trade-in programs that allow buyers of the first generation product to trade-in the product and purchase the new generation product at a lower price. By considering the interactions between “forward-looking” consumers and a firm when a trade-in program is offered, we analyze a two-period dynamic game to determine the optimal prices of two successive-generation products in equilibrium, and examine the conditions under which trade-in programs are beneficial to the firm. Our model incorporates market heterogeneity (valuation of the first generation product varies among the consumer population), product uncertainty (the incremental value of the new product is uncertain before its introduction), and consumers' forward-looking behavior (consumers take future product valuation and prices into consideration when making purchasing decisions). With the trade-in option, we show that consumers are willing to pay a price that is higher than their valuations of the current product. Furthermore, trade-in programs are more beneficial to the firm when: (i) the durability of the current product is high; (ii) the market heterogeneity is low; or (iii) the uncertainty level (or the expected incremental value) of the new product is high. Finally, when the incremental value of the new product is more uncertain, consumers are more willing to purchase the current product because of the “option” value of the trade-in programs and thus trade-in programs can be more beneficial to the firm in this case.
With the rise of online retail markets, many online retailers are replicating the promotion strategies that offline retailers have used without a clear understanding of whether these strategies will deliver similar results in online markets. In particular, a loyalty program, which provides rewards that can be used for future purchase, is a widely adopted promotion strategy by both offline and online retailers with the intention of increasing customer retention and resultant profits. However, the profit contribution of loyalty programs in offline markets is highly controversial. Our question is whether the result will be similar in online markets. Our game-theoretic model shows that the likelihood of success for loyalty programs is higher in online than in offline markets. We note that consumers’ preference for retail stores is more dynamic, and the cost of revisiting a store to redeem loyalty rewards is relatively lower in online markets, because consumers in online markets do not incur physical transportation costs. These characteristics provide the condition where loyalty programs effectively facilitate customer retention, while having fewer risks of rewarding the customers who would have made a purchase regardless of any offered rewards. Our model also suggests that, due to the more dynamic consumer preference in online markets, transaction data collected through loyalty programs provides stronger profit incentives for retailers. Our study helps retailers understand the differences between offline and online markets as well as the impact of the differences on the effectiveness of their loyalty programs.
To entice customers to purchase both current and new generation products over time, many firms offer different trade-in programs including programs that require customers to pay an up-front fee. To examine the effectiveness of the trade-in programs, we develop a two-period model in which a firm sells the first generation product in the first period and the second generation product in the second period; however, the firm offers a trade-in program that customers can participate in when purchasing the first generation product in the first period. To participate, each customer has to pay a nonrefundable fee in the first period so that she has the option to trade-in her first generation product and receive a prespecified trade-in value to be used for the purchase of the second generation product in the second period. To capture market heterogeneity and market uncertainty, we examine the case when the valuation of the first generation product varies among customers and the valuation of the second generation product is uncertain a priori. By analyzing a two-period game, we determine the optimal purchasing behavior of each rational customer, and we show that the firm is always better off by offering its own trade-in programs. Also, our numerical analysis reveals that trade-in programs can benefit the firm significantly especially when (i) the residual value of the first generation product is high; (ii) the expected incremental value of the second generation product is high; or (iii) the valuation of the second generation product is highly uncertain.
This paper analyzes the role played by brand loyalty in determining optimal price promotional strategies used by firms in a competitive setting. (Loyalty is operationalized as the minimum price differential needed before consumers who prefer one brand switch to another brand.) Our objective is to examine how loyalties toward the competing brands influence whether or not firms would use price promotions in a product category. We also examine how loyalty differences lead to variations in the depth and frequency with which price discounts are offered across brands in the same product category.
The analysis predicts that a brand's likelihood of using price promotions increases with an increase in the number of competing brands in a product category. In the context of a market in which a brand with a large brand loyalty competes with a brand with a low brand loyalty, it is shown that in equilibrium, the stronger brand (i.e., the brand with the larger loyalty) promotes less frequently than the weaker brand. The results suggest that the weaker brand gains more from price promotions. The analysis helps us understand discounting patterns in markets where store brands, weak national brands, or newly introduced national brands compete against strong, well known, national brands. The findings are based on the unique perfect equilibrium in a finitely repeated game. The predictions of the model are compared with the data on 27 different product categories. The data are consistent with the main findings of the model.
Reward programs, a promotional tool to develop customer loyalty, offer incentives to consumers on the basis of cumulative purchases of a given product or service from a firm. Reward programs have become increasingly common in many industries. The best-known examples include frequent-flier programs offered by airlines, frequent-guest programs offered by hotels, and frequent-shopper programs offered by supermarkets. Despite the widespread business practice of reward programs, research efforts on reward programs, particularly in marketing, have been scarce. Our paper takes an important step towards understanding the design of reward programs and its implications on pricing strategies.
We study a market that consists of two segments: heavy- and light-user segments. The key distinction between the two segments is that the heavy-user segment purchases in each period and thus is a candidate for the reward programs. In contrast, the light-user segment exits the market after one purchase and is not in a position to exploit reward programs. An important feature of our model is that we allow for different price sensitivity between heavy-user and light-user segments. Our model closely examines the type of rewards. A reward worth a dollar to the consumer might have different cost implications for the offering firm, depending on the type of reward. For example, cash rewards have higher unit reward cost (inefficient reward) for the firm than a free product of the firm, such as an airline ticket or long-distance minutes (efficient reward). Specifically, we examine an interesting puzzle observed in the marketplace. Several firms offer a cash reward or a product not made by the firm, such as jackets, electronic items, etc. These firms could offer their own product as rewards and significantly lower their cost. We examine whether there is any reason for such a seemingly suboptimal practice.
Our analysis shows that reward programs weaken price competition. By offering the incentives for repeat purchases, reward programs increase a firm's cost to attract competing firms' current customers. Because firms gain less from undercutting their prices, equilibrium prices go up. Moreover, as consumers become unwilling to switch because of potential rewards, the firm with a larger market share in the heavy-user segment charges higher prices. Therefore, a low price in the first period, which leads to a larger market share in the heavy-user segment, will always be followed by a high price in the second period. In our model, consumers are rational and can correctly anticipate firms' incentive to offer lower prices initially to enroll them into the reward programs.
Our paper offers an explanation as to why the type and amount of reward may vary across the programs. We identify two determining factors for the selection of rewards: size and relative price sensitivity of the heavy-user segment. We find that in a market with a small heavy-user segment that is also much more price sensitive than the light-user segment, it is optimal for firms to offer the most inefficient rewards. The intuition is based on the firms' incentive to exploit the price-insensitive light-user segment. By offering inefficient rewards, firms are able to commit to weaker competition and, therefore, higher prices.
When the heavy-user segment is large or not very price sensitive, when compared to the light-user segment, competing firms should adopt the most efficient rewards to maximize their profit. This may well be the case in a number of real-world situations in which efficient rewards are quite prevalent. We also find that optimal reward amount has a negative relationship with unit reward cost. Because both firms use rewards to attract the heavy users, they tend to offer more when they adopt the more efficient rewards.
Finally, our paper identifies the relationship between market characteristics and theimpact of reward programs on firms' profits and consumers' benefits. We find that firms gain from the adoption of reward programs as long as light users are not too price sensitive. When light users are very price sensitive, firms engage in intense price competition, thus benefiting little from the loyalty of heavy users created through rewards. Because reward programs increase market prices, light users, who do not get the reward, earn strictly lower benefit. In contrast, heavy users often stand to gain more from the reward program. In most cases, firms and the heavy users are better off at the expense of light users.
In this paper we examine the issue of balancing media advertising (pull strategy) and trade promotions (push strategy) for manufacturers of consumer packaged goods utilizing a three-stage game theoretic analysis and test model's implications with scanner panel data.
We develop a model of two competing manufacturers who distribute their brand to consumers through a common retailer. In the model the manufacturers directly advertise their brand to consumers and also provide trade deals to the retailer. Each manufacturer's brand has a loyal segment of consumers who buy their favorite brand unless the competing brand is offered at a much lower price by the retailer. The number of loyal consumers is different for the two brands and so is the strength of their loyalty to their favorite brand. The loyal consumers of the brand with stronger loyalty require a larger price differential in favor of the rival brand before they will switch away from their favorite brand.
The manufacturers first decide advertising spending level, and then the wholesale price of their respective brands. The two manufacturers do not observe each other's decisions while making these decisions, however they do take into account how the other firm is likely to react as a function of their own decisions. Advertising directly affects the strength of loyalty a consumer has for the favorite brand. If the favorite brand advertises, the loyalty strength increases but if the rival brand advertises, it decreases. The marginal effect of own versus competing brand advertising is different in magnitude.
The two manufacturers provide trade deals to the retailer by discounting the brand from a regular wholesale price. The trade discounts are partially passed on to the consumers by the retailer who sets the retail prices of the two brands after observing the wholesale prices. The retail shelf price discounts make the promoted brand more attractive to the consumers due to the reduced price differential between their favorite brand and the promoted brand, thus affecting their switching behavior.
The model and its analysis shed light on the role of brand loyalty in the optimal advertising and trade promotion policies for the two manufacturers. The analysis indicates that, if one brand is sufficiently stronger than the other and if advertising is cost effective, then the stronger brand loyalty requires less advertising than weaker brand loyalty, but a larger loyal segment requires more advertising than a smaller loyal segment. Moreover, stronger brand loyalty requires more trade promotion spending under these conditions. The analysis also indicates that the retailer promotes the stronger loyalty brand more often but provides a smaller price discount for it compared to the weaker loyalty brand.
These analytical results can be understood better if we view advertising as a “defensive” strategy used to build brand loyalty which helps in retaining the loyal consumers, and price promotions as an “offensive” strategy used to attract the loyal consumers away from the rival brand. For example, the result that the stronger brand invests less in advertising than the weaker brand can be explained as follows. The stronger loyalty brand does not find use of advertising attractive because it faces little threat from the weaker brand due to its sufficiently stronger loyalty. Instead it spends more on promotions (provided advertising is cost effective) to attract away the weaker brand's loyal consumers. The weaker brand, on the other hand, finds it optimal to defend its loyal franchise by spending more on advertising, as promotions do not help much due to the difficulty in attracting away the stronger brand's loyal consumers. In this sense, the stronger brand plays “offensive” by using more trade promotions, and the weaker brand plays “defensive” by emphasizing advertising.
We also conduct an empirical analysis of the model's propositions using scanner panel data on seven frequently purchased nondurable product categories. In a sample of 38 national brands from the seven categories we find that weaker loyalty brands spend more on advertising; brands with larger loyal segment spend more on advertising; and the retailer promotes stronger loyalty brands more often but provides a smaller price discount on average for them compared to weaker loyalty brands. These findings are consistent with the model.
In several markets, consumers can gain further information regarding how well a product fits their preferences only by experiencing it after purchase. This could then generate loyalty for the products tried first. This paper considers a model in which consumers learn in the first period about the product they buy and then make choices in the second period about the competing products, given what they learned in the first period. The paper finds that if the distribution of valuations for each product is negatively (positively) skewed, a firm benefits (is hurt) in the future from having a greater market share today—the brand loyalty characteristic. With negative skewness, two effects are identified: On one hand, marginal forward-looking consumers are less price sensitive than myopic consumers, and this is a force toward higher prices. On the other hand, forward-looking firms realize that they gain in the future from having a higher market share in the current period and compete more aggressively in prices. For similar discount factors for consumers and firms, the latter effect dominates. The paper also characterizes the importance of consumer learning effects on the market outcome.
Motivated by a recent antitrust ruling against Hill–Rom, one of the two dominant American suppliers of hospital beds, we develop a stylized model to investigate the consequences of used product take-back on firms, industry and customers. Our findings suggest that by taking back and reselling refurbished products, a manufacturer can increase both profit margins and sales––to the detriment of a non-interfering competitor. In our model, customers are always better off under product take-back, but it depends on the degree of competition, whether firms use the benefits of take-back primarily to increase their margins or to pass them on to the customers by lowering their prices. The first firm to offer take-back, in some cases, can deter its competitors from following this profitable strategy, especially if it has an existing advantage in terms of lower production cost or higher market share. Contrary to the claim of Hill–Rom's competitor, we find a “legitimate business justification” for Hill–Rom's reduction of new product prices.
Loyalty programs are very common in practice. Many researchers have worked at understanding the impact of loyalty programs on market competition and the mechanism behind it. Interestingly, almost all of the studies have explored a symmetric equilibrium where both of the competing firms offer a loyalty program. To our knowledge, the extant literature has not investigated in-depth whether asymmetric equilibrium can exist where only one firm chooses to offer a loyalty program and the other firm chooses to compete via lowering prices. Such a question is important because some markets do support such asymmetric equilibriums with respect to loyalty programs. Also, the existence of asymmetric equilibrium shows that a loyalty program need not be profitable for some firms.
In this paper, we use a game-theoretic framework to investigate specific types of customer loyalty programs that provide benefit to loyal customers in the form of discount over market prices. The model considers consumer switching and includes two types of consumer heterogeneity. The first type of heterogeneity concerns the differences between customers with respect to their liking for loyalty programs, and the second type concerns the differences among the loyalty program members with respect to their ability to collect enough loyalty points to redeem loyalty rewards. By analyzing a duopoly market, we find that both symmetric equilibrium (i.e., where both competing firms offer the loyalty program) and asymmetric equilibrium (i.e., where one firm alone offers the loyalty program) can be sustained. The paper explores conditions for the existence of these two equilibriums.
We model the commonly used marketing practices of offering discounts to either repeat buyers (trade-ins) or new buyers (introductory offers) of a quasi-durable good. We analyze these practices in terms of their potential for intertemporal and third-degree price discrimination. In our two-period model, the monopolist sets a first-period price that segments the second-period market optimally into holders and nonholders of the good. In the second period, different prices are quoted to the two market segments. We present three versions of the model with varying assumptions on consumers' rationality.
In many markets, firms can price discriminate between their own customers and their rivals' customers, charging one price to consumers who prefer their own product and another price to consumers who prefer a rival's product. We find that when demand is symmetric, charging a lower price to a rival's customers is always optimal. When demand is asymmetric, however, it may be more profitable to charge a lower price to one's own customers. Surprisingly, price discrimination can lead to lower prices to all consumers, not only to the group that is more elastic, but also to the less elastic group. Copyright (c) 2000 Massachusetts Institute of Technology.