Abstract
Holiday merchandise has unique demand characteristics, unofficial start data, and a limited life cycle. In an intensely competitive market, individual merchants are able to get more sales opportunities if they display their products earlier. In this study, a time-variant variance and time-variant expected market demand model are introduced to investigate the order strategies that are used by risk-averse holiday merchants. Our results show that risk preference, market uncertainty, and market power have a significant effect on the merchant’s market strategies. Risk-averse merchants prefer to enhance forecast accuracy rather than using an early-display advantage. They can even give up their early-display advantage if they are faced with increased market uncertainty and small market power. Compared with the fixed purchase cost, the time-sensitive purchase cost can stimulate the merchant to purchase in advance, but this can decrease the merchant’s profit. Consequently, risk-averse merchants always display their merchandise later, decrease the order quantity, and, finally, miss the market opportunity.
Highlights
As a special type of seasonal goods, holiday merchandise has unique demand characteristics, such as an unofficial start date and a finite selling horizon [1]
Our results show that risk preference, market uncertainty, and market power have a significant effect on the merchant’s market strategies
An early display entails opportunity costs. Why do these merchants put this holiday merchandise on display so early? Frank [2] argued that the rationale behind early display is that, in a fiercely competitive market, any merchants who wait until the Friday after Thanksgiving to display Christmas wreaths will lose out to merchants who display them earlier, allowing them to capture more of the market demand and reap the first-mover advantage
Summary
As a special type of seasonal goods, holiday merchandise has unique demand characteristics, such as an unofficial start date and a finite selling horizon [1]. Most holiday goods are introduced into the retail market over a well-defined and finite selling horizon They are removed from display after the special date has passed. An early display may help the merchant to capture more of the market demand but can reduce the sales of other merchandise (because the shelves are limited) and increase the sales forecast error. This study aims to investigate the merchant’s challenge of optimizing the display time and inventory management of holiday merchandise in a competitive retail market that is characterized by uncertainty, low-salvage values, and high stock-out costs.
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