Abstract
This study applies a two-period pricing model to investigate the optimal pricing strategy for different periods during the subsequent selling season for seasonal products. The model assumes that the market is populated by two types of consumers, namely, myopic and strategic, and analyzes three optimal pricing strategies: one price (OP), preannounced slash price (PSP), and preannounced small price reduction (PSPR). Several propositions are derived by comparing these three strategies. Results show that the PSP strategy is superior to PSPR and OP strategies only when certain conditions are satisfied. Otherwise, the OP or the PSPR is consistently superior to the PSP. When retailers adopt a markdown price, they should reduce the price early to ensure a long second period. Finally, this study provides several numerical examples to illustrate the propositions derived from the theoretical analysis.
Highlights
The rapid development of technology has substantially decreased the life cycle of products in recent years, and several goods have been characterized as seasonal products
We develop a two-period pricing model and introduce three pricing strategies for seasonal products, namely, one price (OP) strategy, preannounced slash price (PSP) strategy, and preannounced small price reduction (PSPR) strategy
We develop a two-period pricing model to analyze the OP strategy and two markdown pricing strategies
Summary
The rapid development of technology has substantially decreased the life cycle of products in recent years, and several goods have been characterized as seasonal products. Under the PSP strategy, the retailer sells products with the regular price (p1) in the first period and with a preannounced slash price (p2) in the second period. When the retailer adopts the PSPR strategy, it sells products with the regular price (p1) in the first period but with a small price reduction (p2) in the second period. With the two-period pricing model, we derive the optimal prices for the retailers and the length of reduction period of the selling season under the three pricing strategies. A preannounced dynamic pricing strategy affects consumers in each period, and price reduction during the reduction period of the selling season has a negative influence on the sales of the product. Our results show that the optimal pricing strategy of the retailer is mainly determined by the length of the second period over the selling season.
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