Reseach On Firm’s Joint Decision Of Pricing, Ordering And Gift Card Promotion Strategy

In recent years, gift card promotion is more and more popular with people, which maximizes firm’s profits and consumer surplus. In addition to attracting more consumption from customers, it also appeals to potential customers. This has also attracted the attention of many scholars, resulting in more and more research on gift card promotion. However, most of the study about gift card is still remain in the qualitative description. There is less about the quantitative description of the core issue on gift card promotion, hence there is lack of theoretical guidance when firms implement gift card promotion.Therefore, how to joint decision of pricing, ordering and gift card promotion strategy has become an urgent key issue.In this paper, based on the characteristics of retailer-facing market demand(deterministic demand and stochastic demand), we firstly establish retailer’s maximized profit function and construct models for jointly determining gift card face value, price and order quantity. Secondly, we analyze the structure of the models and solve the optimal solutions, namely the optimal gift card face value, pricing and ordering quantity through use of Mathematica and MATLAB methods. Then, we do a numerical example analysis to study how the related factors affect the optimal gift card face value, pricing, ordering quantity and retailer’s profit. Finally, we reveal the relationship among gift card promotion strategy, pricing and ordering quantity. And we provide the design rules of the optimal gift card strategy, as well as the method of the optimal pricing and ordering strategy. Based on the study, we can find out that:(1) the gift card programs can result in increases in firm’s profit, which depend on these key factors, namely the future cash purchase offset, the margin on sales, the reference price and the gift card redemption rate.(2) in the case of deterministic linear demand, the higher the future cash purchase offset, the smaller the increase in profit that can be brought about by gift card promotion; The higher the margin on sales, the larger the increase in profit that can be brought about by gift card promotion; The higher the reference price, the larger the increase in profit that can be brought about by gift card promotion. Moreover, when the reference price is more than $17, it is profitable for retailer to provide gift card promotion.(3) in the case of deterministic elastic demand, the higher the future cash purchase offset, the smaller the retailer’s profit by offering gift card; The higher the margin on sales, the larger the retailer’s profit by offering gift card; The higher the reference price, the larger the retailer’s profit by offering gift card. Moreover, when the reference price is more than $6, it is profitable for retailer to provide gift card promotion.(4) in the case of stochastic linear market demand, the higher the future cash purchase offset, the smaller the retailer’s expected profit that can be brought about by gift card promotion; On the other hand, the higher the margin on sales, the larger the retailer’s expected profit that can be brought about by gift card promotion; And the higher the gift card redemption rate, the smaller the retailer’s expected profit that can be brought about by gift card promotion. However, when the gift card redemption rate is lower than 0.3, it is profitable for retailer to provide gift card promotion.(5) in the case of stochastic elastic demand, the higher the future cash purchase offset or the gift card redemption rate, the smaller the retailer’s expected profit that brought about by gift card promotion; The higher the margin on sales, the larger the retailer’s expected profit that brought about by gift card promotion. And in this case, the retailer’s expected profit by offering gift card promotion is always larger than that of no gift card situation.