Buy now or later? New or remanufactured? How to attract strategic customers

Abstract

It is common for sellers to markdown product prices late in a selling season which prompts consumers to strategically manage their purchase timing. Facing consumers’ strategic behaviour, the manufacturer should decide the prices for products carefully to ensure its profit. This paper explores the manufacturer’s optimal pricing decisions in a closed-loop supply chain by considering the customers’ type, the limited number of returns, consumers’ acceptability of the remanufactured products, as well as the discounting rate of consumers’ perceived value for a delayed purchase. The results show that the manufacturer’s retailing plan and the optimal prices depend on the unit production cost of the new and remanufactured products. In general, the consumer’s strategic behaviour hurts the manufacturer’s profit. When consumers are strategic, the manufacturer reduces the selling price of the new product and it is less likely to engage in remanufacturing when the unit production cost of the new product is high as compared to the case of myopic customers. The numerical experiments provide additional implications and show that the manufacturer can take some simple counter-measure strategies to react to either the underestimation or overestimation of the expected price by the consumer.