Effects of Consumers’ Strategic Behavior and Psychological Satisfaction on the Retailer’s Pricing and Inventory Decisions

Abstract

This paper introduces a concept of psychological satisfaction to describe the utility of customers under different psychological perception. It studies the purchase behavior of strategic customers based on their psychological satisfaction and analyzes its impacts on the optimal pricing and inventory decisions and the corresponding profit of retailers. The following conclusions are got in this study. (i) Compared to psychological neutral strategic consumers, the behavior of the psychological elation strategic consumers will further induce the retailer to lower price and reduce inventory, thereby further damaging the profits of the retailer. And the stronger the emotion of psychological elation, the greater the loss of damage. (ii) The behavior of disappointment aversion strategic consumers will alleviate the adverse effects of their strategic behavior on the retailer's profit to a certain extent. And the stronger the disappointment aversion emotion, the more obvious the alleviating effect it has. (iii) Considering the effect of consumers' psychological satisfaction, the retailer's pricing is positively correlated with product cost and the valuation of consumers, and negatively correlated with the salvage price. The retailer's inventory is positively correlated with the salvage price and the valuation of consumers, and negatively correlated with product cost. The profit of the retailer is positively correlated with the valuation of consumers, but the relationship between the retailer's profit and product cost or the salvage price depends on other parameters. INDEX TERMS Strategic consumer, psychological satisfaction, newsvendor model, game theory.

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