Early Sales of Seasonal Products with Weather‐Conditional Rebates

Abstract

Some retailers of seasonal products adopt weather‐conditional rebate programs to induce early sales and increase profits. In such promotions, customers who buy the product in an advance preselling period are offered rebates if a pre‐specified weather condition is realized during the later normal selling season. We investigate the potential benefits of these programs for retailers. We show that the weather‐conditional rebate program can increase sales by price discriminating among a customer's post‐purchase states. Taking advantage of the early sales, it can also reduce the inventory holding cost and ordering cost, and hence can increase the retailer's expected profits. In addition, we numerically investigate the sensitivity of the rebate program's effectiveness to the model parameters and illustrate its advantages over an advance‐discount policy.

Assessing and hedging the cost of unseasonal weather: Case of the apparel sector

“…The most common is named operational hedging (see Boyabatli and Toktay, 2004, for a comprehensive discussion) which includes choice of product assortment (Devinney and Stewart, 1988), quick response, delayed product differentiation, resource diversification and sharing, and price mark-downs at the end of season. Another way is to hedge against adverse weather with either exchange-traded contracts, through the OTC with customized weather contracts such as those provided by the Climate Corporation or Meteo Protect, or by taking an insurance policy with specialized firms (Chen and Yano, 2010;Gao et al, 2012;Caliskan Demirag, 2013). In summary, whilst current academic literature has mostly focused on how to hedge the impact of weather and value weather derivatives, very few papers have discussed how to mathematically establish the relationship between the weather and financial performance.…”

Coordinating contracts for supply chains that market with mail-in rebates and retailer promotions

“…Two papers illustrate how to use rebates as effective marketing mechanisms in price discriminating between consumer types (Moorthy and Lu, 2007) and market segmentation (Dogan et al, 2010). Recently, two others (Chen and Yano, 2010;Gao et al, 2012) relate the redemption of rebates to subsequent weather conditions, and the authors show that weatherconditional rebate programmes can effectively increase sales and profits.…”

Risk Transfer Mechanism for Agricultural Products Supply Chain Based on Weather Index Insurance

“…Chen and Yano consider a supply chain for a seasonal product (including agricultural product) whose demand is its weather sensitivity and the design of the weather-linked rebate contract with many different forms that Pareto are improving [8]. Gao et al study that retailers of seasonal products (including agricultural products) adopt weather-conditional rebate programs to induce early sales 2 Complexity and show that the weather-conditional rebate program can increase sales by discriminating price in a customer's postpurchase states [21]. Yi and Li investigate the risk management of agricultural products supply chain in China by designing weather compensatory contract under weatherrelated demand [22].…”