Pricing And Inventory Management Considering Strategic Customer

Facing with their favorite products, customers may not buy them immediately, but pay attention to it while anticipating future discounts. These customers are called strategic customers. Distinguished from myopic customers, strategic customers will predict the seller’s pricing and promotional strategies to determine their own strategy:to buy it immediately or to wait for the future discount. If sellers ignore the presence of strategic customers, they will lose up to20%of the overall profits. Therefore, how to deal with these strategic customers properly has become a challenge for retailers.To analyze the influence of strategic customer on retailers’profit, this paper addresses the single-period joint inventory and pricing decision problem considering strategic customers with risk preference and decreasing value. Results shows that comparing with the classic Newsvendor Model, strategic customer’s behavior leads to lower ordering quantity, price and total profit, which are bad for the retailers. Furthermore, we study the impact of the risk preference and the decreasing value of strategic customers on the ordering quantity, the sale price and the total profit.Then we study the impact of the capacity rationing and reimburse contract on the alleviation of the strategic customers’behavior. We find that capacity rationing can alleviate the strategic customers’behavior, reimburse contract can also alleviate under some conditions.This paper provides a behavioral rather than cost based explanation of stocking and pricing decisions. And it can also help retailers better understand strategic customer behavior and alleviating methods.