Advance selling with part payment for new to-be-released products
Abstract
Purpose
The paper aims to study a strategy of advance selling with part payment (ADP) in which pre-ordering consumers are required to pay a portion of advance price first and then pay the rest in the spot period to complete the order. The authors compare the ADP strategy with strategies of advance selling with full payment (ADF) and no advance selling (NA) from the perspective of sellers.
Design/methodology/approach
The paper proposes a two-period pricing model with price-off promotion in the first period for a market consisting of consumers and a single seller. For each strategy (i.e. NA, ADF and ADP), solutions to the seller’s optimal order quantity in the spot period, optimal advance price and prepayment in the advance period are derived by backward conduction. Numerical study is also used to obtain straightforward insights.
Findings
Advance price of ADF is lower than that of ADP. Order quantity of ADF is higher than that of ADP. ADP brings more profit than the other two selling strategies, i.e. NA and ADF, when ADP’s implementing conditions are satisfied. While ADF is effective only when unit cost is low, ADP is applicable irrespective of whether the cost is low.
Originality/value
Existing researchers on advance selling mainly focus on the ADF strategy. The paper pays attention to different payment mechanisms in advance selling and steps further to propose a new form of advance selling, i.e. the ADP strategy. The effects of ADP on consumer’s purchasing behavior and seller’s marketing decisions are analyzed.
Keywords
Acknowledgements
The authors acknowledge the financial supports from the National Natural Science Foundation of China (71601173), the China Postdoctoral Science Foundation (2015M580556 and 2016T90588) and the Fundamental Research Funds for the Central Universities.
Citation
Tang, W. and Ang, S. (2017), "Advance selling with part payment for new to-be-released products", Journal of Modelling in Management, Vol. 12 No. 3, pp. 455-474. https://doi.org/10.1108/JM2-03-2016-0025
Publisher
:Emerald Publishing Limited
Copyright © 2017, Emerald Publishing Limited