Selling to strategic consumers when product value is uncertain: The value of matching supply and demand

Published

Journal Article

We address the value of quick response production practices when selling to a forward-looking consumer population with uncertain, heterogeneous valuations for a product. Consumers have the option of purchasing the product early, before its value has been learned, or delaying the purchase decision until a time at which valuation uncertainty has been resolved. Whereas individual consumer valuations are uncertain ex ante, the market size is uncertain to the firm. The firm may either commit to a single production run at a low unit cost prior to learning demand, or commit to a quick response strategy that allows additional production after learning additional demand information. We find that the value of quick response is generally lower with strategic (forward-looking) customers than with nonstrategic (myopic) customers in this setting. Indeed, it is possible for a quick response strategy to decrease the profit of the firm, though whether this occurs depends on various characteristics of the market; specifically, we identify conditions under which quick response increases profit (when prices are increasing, when dissatisfied consumers can return the product at a cost to the firm) and conditions under which quick response may decrease profit (when prices are constant or when consumer returns are not allowed). © 2011 INFORMS.

Full Text

Duke Authors

Cited Authors

  • Swinney, R

Published Date

  • October 1, 2011

Published In

Volume / Issue

  • 57 / 10

Start / End Page

  • 1737 - 1751

Electronic International Standard Serial Number (EISSN)

  • 1526-5501

International Standard Serial Number (ISSN)

  • 0025-1909

Digital Object Identifier (DOI)

  • 10.1287/mnsc.1110.1360

Citation Source

  • Scopus