Pricing design and contract selection with customers’ self-control: a strategic analysis

Abstract

Purpose The purpose of this paper is to examine how customers’ self-control affects their purchase decisions and to discuss the pricing decisions of the retailer under different forms of contract. Design/methodology/approach The authors use the literature on hyperbolic discounting to model customers’ self-control problems. In this framework, the authors examine how the customers’ self-control affects the optimal pricing decision and the selection of the optimal contract form when there is a supplier and a retailer in the supply chain. Findings The study’s results show that when wholesale price contract is compared with buyback contract, buyback contract is better when customers’ self-control is weak; when quantity-discount contract is compared with wholesale price contract and buyback contract, although quantity discount can encourage customers to purchase more units of products, but both wholesale price contract and buyback contract can be better than quantity-discount contract in some cases. Additionally, the authors demonstrate that revenue sharing contract can increase the supply chain’s profit. The authors also find that sometimes customers’ preplan will lead to the result that the supplier produces more unhealthy products. Originality/value To the best of the authors’ knowledge, this is the first study to analyze the decision-making of the retailer by developing an analytical framework combining customer’s self-control and supply chain contract. These results have important implications for the supplier and the retailer that sell vice goods.

I Consume, Therefore I Am? Hyperconsumption Behavior: Scale Development and Validation

“…The predominant view in the literature is that the decision-making for the purchase of large amounts of food is determined by the consumers' inability to apply self-control while shopping (Stefan et al 2013;Yuwei et al 2022).…”

Perspectives of two competing manufacturers: customer rebate vs. contract mechanism

“…In particular, RS contracts have been applied in the following cases: car-sharing platforms (Cohen and Zhang, 2017), video rental (Mortimer, 2008), the airline alliance (Hu et al , 2013) and the motion picture industry (Filson and Havlicek, 2018). There has also been a large body of literature on using RS contracts to succeed in coordination in a supply chain (Cachon and Lariviere, 2005; Yuwei et al , 2023). However, most of the literature has focused on using RS contracts to coordinate the supply chain between an upstream manufacturer and a downstream retailer.…”