Research On Ordering Policy By Option Contract Considering Consumer’s Strategic Behavior Conditions

With the rapid development of technology and diversification of market demand, more and more products act like perishable products, having the characteristics of long lead time, short lifecycle, low salvage value and especially demand uncertainty. However, because of the long lead time and the uncertainty of the demand, manufacturer and retailer have a conflict of interests. Manufacturers prefer retailers to place full orders as early as possible so as to coordinate the produce plan and reduce the cost, while retailers prefer to delay the time of order to lower the mismatch of the demand and lower the possibility of cost because of leftover and stock out. Motivated by this observation, in this paper we apply option mechanism to achieve the win-win situation between the manufacturer and retailer.Meanwhile, retailer often cuts its price in order to increase its share of the market. For both retailer’s markdown strategy and having the Internet proficiency, the consumer is trained to develop the ability to predict the market situation and retailer’s selling strategy. Retailers are increasingly cognizant of the fact that modern consumers are educated, sophisticated and willing to go to extraordinary lengths to purchase goods at the lowest possible price. One common and powerful tactic consumers use to achieve this goal is to wait to purchase items only when they are on sale or clearance, a strategy trained by the fact that many retailers have predictable seasonal markdown pattern and offer deep discounts. Consumers who behave in this manner are referred as strategic consumers, and they recognize that a desired product is likely to reduce in price at some point in time. They take these future markdowns and the availability of the product into account when timing their purchasing decisions. Strategic behavior of consumers brings retailer lost profits. Many scholars began to study the influence of the strategy consumer behavior in the supply chain management.In this paper, we have studied a simple supply chain channel that sells a seasonal product from the prospect of retailer. We consider the case in which there is an opportunity for retailer to adjust the order quantity within the manufacturer’s reserved capacity after demand information updating during the lead time. By taking all these factors into consideration, we apply option contract and the twice pricing strategy in our model to quick respond to the uncertain demand in the presence of strategic and nonstrategic consumers in the market, and explore the optimal order quantity and optimal price of the retailer.