Online hot selling period and its impact on e-retailer’s pricing strategies

Abstract

The express delivery industry is often overloaded in some hot online selling seasons, which causes consumers’ dissatisfaction. Under such a circumstance, the e-retailer can utilise two opposite strategies, i.e. to set-up either a low price with a pre-announced markdown pricing (PMDP) strategy, or a high price with a pre-announced markup pricing (PMUP) strategy for the hot selling period. As both the prices and the express service quality are different between the regular period and the hot selling period, consumers can strategically choose their purchase time, which will in turn influences the e-retailer’s pricing strategy. To investigate under what condition one pricing strategy will dominate the other, we propose a two period pricing model in which the selling season are divided into regular and hot selling period, and all consumers are assumed to be strategic. The e-retailer determines the prices over the two kinds of periods to maximise its profit. The comparison shows that a PMUP (resp. PMDP) strategy is preferred when the overloading degree in the hot selling period is slight (resp. heavy). Furthermore, we extend our model by incorporating the competition of traditional retailers.