Optimal Advance Selling Strategy With Strategic Consumers Valuation Uncertainty

Advance selling (AS) refers to a marketing practice in which the seller offers buyers opportunities to make purchases before the time of consumption. This is a common practice in the retailing industry. Consumers will predict the seller’s strategy to make their purchasing decisions, which are called strategic consumers. Given that consumers’ valuation uncertainty and disappointment aversion will affect their decisions, the seller needs to decide the most appropriate selling strategy to adopt that best suits its circumstances. This motivates us to study in this paper the seller’s optimal advance selling strategy and pricing mechanism for selling products to consumers with uncertain consumers’ valuation and consumer disappointment aversion.Taking into consideration dynamic pricing (DP) and price commitment (PC), we study the effect of uncertainty in consumers’ product valuation and consumer disappointment aversion on the seller’s pricing and inventory decisions. We find that DP always dominates PC, but adopting AS does not necessarily bring more profit to the seller than using regular selling (RS) strategy. Finally, we numerically evaluate the effects of the key model parameters on the seller’s optimal selling strategy to generate managerial insights from the analytical results.Considering consumer valuation uncertainty and seeking cost, we build a two-period model explore the optimal advance selling strategy. We show that the capacity level for the advance period depends on the cost of unit product. Specifically, when it exceeds a specific threshold, the seller should always adopt the advance selling strategy. In this case, the discount advance selling strategy is optimal. Otherwise, the regular selling strategy is the best choice for the seller. In addition, we find that when the risk cost index is relatively low, a higher consumer seeking cost leads to lower advance selling price and total profit.This paper provides a behavioral explanation of stocking and pricing decisions. And it can also help sellers understand strategic customer behavior and make optimal advance selling strategy and pricing mechanism.