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Advance Booking Discount Programs Under Retail Competition

Author

Listed:
  • Kevin McCardle

    (The Anderson Graduate School of Management, University of California, Los Angeles, California 90095-1481.)

  • Kumar Rajaram

    (The Anderson Graduate School of Management, University of California, Los Angeles, California 90095-1481.)

  • Christopher S. Tang

    (The Anderson Graduate School of Management, University of California, Los Angeles, California 90095-1481.)

Abstract

We model a situation in which two retailers consider launching an "Advance Booking Discount" (ABD) program. In this program, customers are enticed to precommit their orders at a discount price prior to the regular selling season. However, these precommitted orders are filled during the selling season. While the ABD program enables the retailers to lock in a portion of the customer demand and use this demand information to develop more accurate forecasts and supply plans, the ABD price reduces profit margin. We analyze the four possible scenarios wherein each of the two firms offer an ABD program or not, and establish conditions under which the unique equilibrium calls for launching the ABD program at both retailers.

Suggested Citation

  • Kevin McCardle & Kumar Rajaram & Christopher S. Tang, 2004. "Advance Booking Discount Programs Under Retail Competition," Management Science, INFORMS, vol. 50(5), pages 701-708, May.
    • Handle: RePEc:inm:ormnsc:v:50:y:2004:i:5:p:701-708
    DOI: 10.1287/mnsc.1040.0202
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    References listed on IDEAS

    as
    1. Christopher S. Tang & Kumar Rajaram & Ayd{i}n Alptekinou{g}lu & Jihong Ou, 2004. "The Benefits of Advance Booking Discount Programs: Model and Analysis," Management Science, INFORMS, vol. 50(4), pages 465-478, April.
    2. Marshall Fisher & Kumar Rajaram & Ananth Raman, 2001. "Optimizing Inventory Replenishment of Retail Fashion Products," Manufacturing & Service Operations Management, INFORMS, vol. 3(3), pages 230-241, November.
    3. Jagmohan S. Raju & Raj Sethuraman & Sanjay K. Dhar, 1995. "The Introduction and Performance of Store Brands," Management Science, INFORMS, vol. 41(6), pages 957-978, June.
    Full references (including those not matched with items on IDEAS)

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