Optimal pricing strategy of retailers considering speculative customers' add-on items return behavior with cross-store full-reduction promotion

Abstract

This purpose of the paper is to explore the optimal price strategy for the retailers under the cross-store full-reduction promotion mode, where speculative consumers will deliberately purchase add-on items to qualify for discounts when the purchase amount is less than the “full-reduction” threshold and then return the add-on items after successful payment. With respect to the optimal decision problem consisting of two online complementary retailers and an e-commerce platform in the face of speculative consumers’ add-on items return behavior, we construct the single-cycle sales decision models based on the revenue sharing contract. Furthermore, through the derivative function analysis method, we examine the effect of the proportion of speculative consumers, the proportion of product sharing discount amount and revenue sharing coefficient on the platform’s sale strategy and the retailers’ the optimal price strategy. The results show that whether the platform implements cross-store full-reduction promotion strategy or not, the product price increases with the increase of revenue sharing coefficient. In addition, under the non-promotion sales mode, the optimal price is not affected by the speculative consumers’ behavior. Under the cross-store full-reduction promotion sales mode, the optimal price changes with the proportion of product sharing discount amount and the proportion of speculative consumers. And the price of only purchasing single product in this case is always higher than the price under the non-promotion sales mode. Finally, we compare the profits under the two scenarios, it is found that the profits under the cross-store full-reduction promotion sales mode are not always higher than that under non-promotion sales mode, and the boundary conditions for the platform to adopt different modes are further given.