Optimal presale strategy considering consumers’ preference reversal or inconsistency

Abstract

We characterize a seller’s optimal presale strategy considering consumers’ preference reversal or inconsistency. We propose a novel way to measure consumer utility based on time preference and develop four presale strategies for maximizing the seller’s revenue. Tested presale stratgies include the single-stage pure presale (SP), single-stage hybrid presale (SH), two-stage pure presale (TP), and two-stage hybrid presale (TH) methods. We use single-stage models as benchmark models. Our theoretical and numerical analyses indicate that in comparison to the benchmark models (SP and SH), the two-stage presale strategies (TP and TH) are more beneficial for the seller in maximizing his revenue. Furthermore, the seller can determine his optimal prepaid deposit proportion under various parameters, including the presale lead time, retail prices, network externalities, salvage value, natural rate of return, consumers’ psychological cost of uncertainty and inventory availability. In particular, the prepaid deposit proportion should be set high when products are sold under pure presale strategies, with a long presale lead time, with limited network externalities, or at a high retail price. Some valuable suggestions regarding ways to mitigate the negative effect of consumers’ time preferences on the seller’s revenue are discussed.