Abstract
Advance selling helps retailers who often face a newsvendor problem to reduce demand uncertainty. With the development of e-commerce and online retailing, online retailers are no longer limited to adopting single advance selling strategy. With the support of information technology and online payment, the combined strategy of random reward promotion and advance selling becomes increasingly easy to apply. In this article, the model of online advance selling with random rewards strategy is developed based on single advance selling model. The result shows that there is a threshold which determines which of the two strategies is optimal and the numerical analysis further verifies the research results, through comparison and analysis of the advance selling price, consumer utility and retailer's total profit of single advance selling strategy and advance selling with random rewards strategy. Furthermore, the study also finds the effect of the expected utility of random rewards on the advance selling price.
Highlights
The retailers face newsvendor problems in a market with uncertain demands
It is estimated that the number of online shoppers in China have reached 533 million in 2017, an increase of 14.3% from 2016, with online shoppers accounting for 69.1 percent of the total Internet users, [4] which have supported the constant innovation of marketing models and promotion methods
Proposition 1: When the online advance selling strategy considering random rewards is adopted, the expected utility of consumers during the advance selling period is greater than that of consumers when a single advance selling strategy is adopted, which can be denoted as U A > UA
Summary
The retailers face newsvendor problems in a market with uncertain demands. Advance selling strategy is introduced in service industries with limited supply and uncertain demand, such as hotels and airlines, to reduce demand uncertainty. L. Peng et al.: Optimal Strategies for Online Advance Selling With Random Rewards—Case From China promotion, including WeChat ‘random red envelope’ that encourages interaction and participation, can increase the expected utility of consumers [5] and can stimulate consumers’ purchasing enthusiasm and increase market demand. During the double 11 shopping carnival in 2018, Alibaba’s E-commerce platforms, Tmall and Taobao, have nearly 200,000 merchants to implement a combination strategy of advance selling and random rewards. They announced that the total value of random rewards could reach one billion, and the wining amount of individual consumers could be as high as RMB 1,111 during the advance selling period from October 20 to November 10.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
