Optimal Advance-Selling Strategy for Fashionable Products With Opportunistic Consumers Returns

Abstract

Advance-selling (AS) is a commonly observed industrial practice in which a retailer allows consumers to prebook the fashionable product before the real selling season starts. Motivated by this practice, this paper studies AS strategy for a retailer who sells a newsvendor-type of fashionable product in light of potential consumer opportunistic returns. In our model, the consumers face valuation uncertainty and know their valuation realization only after product acquisition. There also exists aggregate demand uncertainty, captured in the conventional newsvendor model. All preorders are fulfilled at the beginning of a normal-selling season. We build analytical optimization models and consider three strategic options for the retailer, namely, no advance-selling allowed (NAP), advance-selling with full refund (AFP) and advance-selling with partial refund (APP), where there are two suboptions under APP. We derive the retailer's optimal pricing and refund policies for each option. By comparing the results in the above options, important insights are generated. Finally, we conduct a numerical analysis to further examine the impacts brought by consumers valuation, market condition, and consumers classification on the optimal strategy.