Advance Selling With Order Cancellation

Internet is rapidly developing nowadays, and Internet economy is in the ascendant. Human’s economic life has gone into the era of digital and network. Different economic entities create values by selling all kinds of tangible products or invisible service to consumers through Internet and Internet of Things, which are based on information and communication technologies. Production and distribution patterns of products are gradually adapting to the characteristics of network atmosphere. As great innovation of Internet marketing strategy, advance selling ahead of production has been adopted by many enterprises. It helps sellers to reduce demand uncertainty, drift inventory risk, because the advance orders are pre-committed. It is interesting to research on the operational decisions of advance selling in product industry. Consumers may prefer to purchase in advance when given a discount or just their loyalty to the brand. However, during the advance selling period, many uncertain factors will affect consumers’decisions, like patience, information update, and the threat of substitutes, because they are lack of information about their pre-ordered product and hesitate to the availability. They will regret for the previous orders or return their unwanted product after they receive it. Order cancellation is one of the strategies to avoid consumers’hesitation, promote advance purchase and reduce product return. Order cancellation, different from product return,occurs before delivery and promotes consumer satisfaction and induces advance purchase, but reduces return cost if there will be.Based on the above mentioned background, using behavioral decision theory, operations research, game theory, economics, system theory, management and other methods, we research on the operational decisions about pricing and quantity of advance selling sellers with order cancellation strategy. The main research contents are as follows.Firstly, this paper analyzes the important impact of network environment on consumer purchase behavior, describes the innovation on product pricing and marketing, sums up the research conditions of advance selling and return at home and abroad, summarizes the blind spot of the research works and the contributions of this paper.Secondly, this paper studies the following situations. Case a, under advance selling, consumer’s decision with no order cancellation. Case b, under advance selling, consumer’s decision with order cancellation. Case c, extension to two-selling-period, consumer’s decision with no order cancellation. Case c, under two-selling-period, consumer’s decision with order cancellation. Inventory and pricing models are built based on the four cases above for further discussion. The results show that the seller could benefit from allowing order cancellations. Second, order cancellation options reduce customers’motive to wait and therefore allow the seller to charge a higher pre-order price. Seller can charge a higher advance price than that under no order cancellation, for regret guarantee. Third, order cancellation yields more profits for seller when consumers in the market have a high probability to find an alternative that is attractive enough. When in a relatively competitive product market, advance selling strategy with order cancellation policy is a better choice for a seller. In addition, high cost and rather high resale price in the second period will benefit sellers more under order cancellationFinally, the research results and the future research directions are summarized.To conclude, this paper explores the benefits of allowing consumers to cancel their previous orders before delivery, focuses on order cancellations occurred in manufacture industry which is different from service industry and takes consumers’ satisfaction risk into the advance selling research where few papers have focused on. Undoubtedly, the research of this paper will have important theoretical and practical significance.