Study On Prepayment Based On Consumer Behavior For New To Be Released Products

With the rapid development of science and the maturity of e-commerce, internet marketing is becoming more diversified and innovative. Advance selling has become a main selling strategy before products putting into production. By advance selling that divides selling into two periods:advance selling period and spot selling period, the seller learns the popularity of products among consumers and forecast the spot demand to reduce inventory risk. Consumers are guaranteed products ability or are able to enjoy some price discount through preordering, while, some of them may find their valuation is lower than advance price in the regular selling season and then face a loss. Thus, advance selling increases the probability of customer return in some extent. For some products that depreciated fast or sold with largely discount, the seller will not provide unconditional customer return service that not only reduces sales but also increases management cost.Based on the above marketing environment, the seller prefers to take the strategy of advance selling with part payment (ADP) under which consumers are required to pay part payment for preordering in advance period and pay the remain to complete the order in the spot period. Different from the general customer return policy, ADP allows customers to cancel an order after preordering but before receiving products. Part payment is not returned to customers if order cancellation occurs. The advance selling market often takes the strategy of advance selling with full payment (ADF) which requires pre-ordering consumers to pay the full at an advance price in advance period. Compared with ADF, ADP reduces the loss of consumers who reserve in advance, while loses part consumers for order cancellation permitted. After trading off the positive effect and the negative effect on the seller’s profit, we investigate whether ADP brings more profit to the seller from the seller perspective.The paper mainly studies ADP strategy, and compare with strategies of no advance selling (NA) and ADF. In this paper, we first analyze consumer behavior under strategies of ADF and ADP, respectively, and then compute consumer utility through mathematical modeling. Based on consumer behavior, the seller’s profit functions are obtained and the optimal decisions are derived by backward induction under different scenarios (i.e., NA, ADF, ADP). By comparing the profits of different strategies (i.e., NA, ADF, ADP), we find the optimal strategy for the seller. Finally, the effects of some related parameters on profits are illustrated through numerical study.We find that:(i) Advance price of ADF is lower than that of ADP in which consumer’s expected utility of advance purchasing is improved, (ii) The optimal order quantity of ADP is less than that of ADF, and profits coming from uninformed consumers of ADP and ADF are the same, (iii) While ADF is effective only when unit cost is low, ADP is applicable for products of high spot price, (iv) ADP brings more profit than the other two selling strategies (i.e., NA and ADF) when ADP’s implementing conditions are satisfied. Existing researchers on advance selling mainly focus on the ADF strategy, while, the paper pays attentions to different payment mechanisms in advance selling. The paper expands the research of advance selling and provides management implications for the seller.