The Effect of Probabilistic Selling on the Optimal Product Mix

Fay, Scott; Xie, Jinhong; Feng, Cong

doi:10.1016/j.jretai.2015.01.004

Cited by 40 publications

(17 citation statements)

References 42 publications

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“…Another setting where customers are prone to anecdotal reasoning is opaque selling, a selling strategy in which a firm mixes different types of a product to sell as an opaque product. The traditional literature on opaque selling (see, e.g., [92,93,94,95,96,97,98,99,100]) assumes that customers anticipate the product mix (the probability of ending up with each type of product) with full rationality. This may not hold in practice.…”

Section: Anecdotal Reasoningmentioning

confidence: 99%

Modeling customer bounded rationality in operations management: A review and research opportunities

Ren¹,

Huang

2018

Computers & Operations Research

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Many studies in operations management started to explicitly model customer behavior. However, it is typically assumed that customers are fully rational decision-makers and maximize their utility perfectly. Recently, modeling customer bounded rationality has been gaining increasing attention and interest. This paper summarizes various approaches of modeling customer bounded rationality, surveys how they are applied to relevant operations management settings, and presents the new insights obtained. We also suggest future research opportunities in this important area.

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Section: Anecdotal Reasoningmentioning

confidence: 99%

Modeling customer bounded rationality in operations management: A review and research opportunities

Ren¹,

Huang

2018

Computers & Operations Research

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“…Similarly, Chen et al (2014) study the impact of different selling mechanisms of an opaque reseller on competing service providers. Fay et al (2015) relax the assumption made in the opaque selling literature that the product mix of the opaque goods is given by showing that the seller can improve its revenue further from selling the optimal opaque goods that is generated from the optimal product mix.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Disney sells its Funko Heroes mini-figrues in blind bags as well. In the apparel industry, Fay et al (2015) report that many online retailers (e.g., lane4swim.com, swimoutlet.com, and store.americanapparel.net) sell certain leftover inventories of apparel and shoes with known sizes in a blind bag; however, the colors, patterns, and styles are unknown to the customers prior to purchase. More recently, Amazon.com sells office supplies (e.g., staples and folders of different colors) as opaque goods (Elmachtoub and Hamilton 2018).…”

Section: Introductionmentioning

confidence: 99%

Mitigating the Double‐Blind Effect in Opaque Selling: Inventory and Information

Tang

2020

Production and Operations Management

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O paque selling is a marketing strategy under which firms sell end-of-the-season inventory of different products as a single opaque good and customers find out the specific products they actually get only after they have made the purchase. Opaque selling entails a "double-blind" process: customers do not know the inventory level of each product, and the seller does not know their product preferences. This double-blind process can result in customer dissatisfaction when customers do not receive the products they were hoping for, and the seller is unable to allocate the right product to the right customer. To reduce customer dissatisfaction arising from the double-blind process, we examine whether the seller should: (i) reveal its inventory information to customers, (ii) solicit each customer's product preference, or (iii) charge customers a higher price for removing product uncertainty; that is, sell specific goods and opaque good at the same time. To examine these issues, we analyze a model in which a firm sells two products as a single opaque good. We show that revealing inventory information or soliciting customer preferences results in higher customer surplus, but lower revenue for the firm. We then consider the case when the firm sells specific goods and opaque good at the same time. We show that relative to the case of selling only the opaque good, the firm's revenue is strictly higher and customer surplus may be higher or lower. Specifically, when the price of specific goods is product dependent, selling specific goods and opaque good at the same time benefits the firm the most when the inventory levels of the two products are relatively balanced and their valuations are strongly skewed. When the price of specific goods is product independent, however, the firm gains the most when the inventory levels are relatively balanced but their valuations are not too strongly skewed. We also identify conditions under which the customer surplus is higher.

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“…The studies about probabilistic selling are nascent but growing. The majority of the research focus on the marketing perspective, addressing the problems of pricing, channel selection [8], design of transparency level [9], and product mix design [10], and have demonstrated significantly positive effects of probabilistic selling on market expansion, market segmentation, price discrimination and product line extension.…”

Section: Probabilistic Sellingmentioning

confidence: 99%

Simulating the Demand Reshaping and Substitution Effects of Probabilistic Selling

Zhang

Huang

Cheng

et al. 2016

Int. j. simul. model.

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This paper addresses the effect of probabilistic selling on inventory decisions and the expected profit through demand reshaping and demand substitution. By considering a scenario with two higher-priced specific products and one lower-priced probabilistic product, we construct a new newsboy-type inventory model with demand reshaping and substitution. A simulation study is implemented to explore extensively the effects of demand uncertainty, demand correlation, price sensitivity and price discount on the inventory decisions and profitability of probabilistic selling. Finally, we provide insightful managerial implications of the nature of inventory management mechanism of probabilistic selling.

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The Effect of Probabilistic Selling on the Optimal Product Mix

Cited by 40 publications

References 42 publications

Modeling customer bounded rationality in operations management: A review and research opportunities

Modeling customer bounded rationality in operations management: A review and research opportunities

Mitigating the Double‐Blind Effect in Opaque Selling: Inventory and Information

Simulating the Demand Reshaping and Substitution Effects of Probabilistic Selling

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