Abstract
We introduce a demand forecasting model for a monopolistic company selling products to consumers with double-entry mental accounting, which means consumers experience pleasure when consuming goods or service and feel pains when paying for them. Moreover, as the monopolist changes prices, consumers form a reference price that adjusts an anchoring standard based on the lowest price that they perceived, namely, the peak-end anchoring. We obtain the steady state prices under three different payment schemes for two- and infinite-period. We also analyze the relationship between these steady prices and maximal profit and compare the steady state prices of different payment schemes by changing the double-entry mental accounting’s parameters through numerical examples. The proposed model is computationally tractable for demand forecasting of realistic size.
Highlights
Accurate demand forecasts are essential for companies including manufactures and distributors because they will drive more responsive customer service with lower inventories and reduced obsolescence [1, 2]
Under the influence of double-entry mental accounting, the reference price will be constantly updated, and the consumers’ perceived price and perceived consumption benefit will be changed under different payment schemes; the demand function will vary, affecting the prediction of product demand quantity
This paper provides a new product demand forecasting and pricing model for consumers with double-entry mental accounting and peak-end anchoring model
Summary
Accurate demand forecasts are essential for companies including manufactures and distributors because they will drive more responsive customer service with lower inventories and reduced obsolescence [1, 2]. A distinctive feature of this work is that it depends on descriptive models of consumer behavior to predict customers’ demand and to derive pricing strategies under dynamic settings We incorporate both the consumers’ mental accounting and the impact of reference price when modeling our demand function. Under the influence of double-entry mental accounting, the reference price will be constantly updated, and the consumers’ perceived price and perceived consumption benefit will be changed under different payment schemes; the demand function will vary, affecting the prediction of product demand quantity.
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