IDEAS home Printed from https://ideas.repec.org/a/spr/annopr/v268y2018i1d10.1007_s10479-017-2512-5.html
   My bibliography  Save this article

On the optimality of coupon books

Author

Listed:
  • John G. Wilson

    (University of Western Ontario)

  • Jing Chen

    (Dalhousie University)

Abstract

Our research was motivated by the challenge that a discount airline can set prices below traditional levels. One possible response for the traditional airline is to offer a book of coupons at a fixed price, in an attempt to retain or even increase market share. Offering coupon books is a way to induce changes in customer buying practices. Here we assume that each customer acts strategically in deciding whether or not to switch airlines and whether to buy the coupon book or the regular tickets. Other than price, the number of coupons in the book provides a way to segment the market. Airlines usually have data on circumstances where no coupon books were offered, but they generally do not have the luxury of experimenting by offering coupon books and gauging the response. The focus for this work is therefore: using only the data that is currently available (from the non-coupon case), are there key indicators that can help an airline decide whether or not to offer coupon books? We demonstrate that the crucial factor is the company’s current market share, and we show how to establish a threshold market share above which coupon books should not be offered. This becomes useful when advising a manager on a course of action, as the decision can be based on knowledge of current market share and beliefs about future market share. We show that there can be a broad region in which a manager can tolerate the give and take involved in behavioral and group decision making.

Suggested Citation

  • John G. Wilson & Jing Chen, 2018. "On the optimality of coupon books," Annals of Operations Research, Springer, vol. 268(1), pages 405-423, September.
    • Handle: RePEc:spr:annopr:v:268:y:2018:i:1:d:10.1007_s10479-017-2512-5
    DOI: 10.1007/s10479-017-2512-5
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10479-017-2512-5
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10479-017-2512-5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Guillermo Gallego & Garrett van Ryzin, 1994. "Optimal Dynamic Pricing of Inventories with Stochastic Demand over Finite Horizons," Management Science, INFORMS, vol. 40(8), pages 999-1020, August.
    2. C K Anderson & J G Wilson, 2003. "Wait or buy? The strategic consumer: Pricing and profit implications," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 54(3), pages 299-306, March.
    3. Meissner, Joern & Strauss, Arne, 2012. "Network revenue management with inventory-sensitive bid prices and customer choice," European Journal of Operational Research, Elsevier, vol. 216(2), pages 459-468.
    4. Hamilton Emmons & Stephen M. Gilbert, 1998. "Note. The Role of Returns Policies in Pricing and Inventory Decisions for Catalogue Goods," Management Science, INFORMS, vol. 44(2), pages 276-283, February.
    5. Gerstner, Eitan & Hess, James D, 1991. "A Theory of Channel Price Promotions," American Economic Review, American Economic Association, vol. 81(4), pages 872-886, September.
    6. Scott Fay, 2004. "Partial-Repeat-Bidding in the Name-Your-Own-Price Channel," Marketing Science, INFORMS, vol. 23(3), pages 407-418, February.
    7. Youyi Feng & Guillermo Gallego, 1995. "Optimal Starting Times for End-of-Season Sales and Optimal Stopping Times for Promotional Fares," Management Science, INFORMS, vol. 41(8), pages 1371-1391, August.
    8. Bing Jing & Zhong Wen, 2008. "Finitely Loyal Customers, Switchers, and Equilibrium Price Promotion," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(3), pages 683-707, September.
    9. Ben-Zion, U. & Hibshoosh, A. & Spiegel, U., 1999. "The Optimal Face Value of a Discount Coupon," ISER Discussion Paper 0480, Institute of Social and Economic Research, Osaka University.
    10. Youyi Feng & Baichun Xiao, 2000. "A Continuous-Time Yield Management Model with Multiple Prices and Reversible Price Changes," Management Science, INFORMS, vol. 46(5), pages 644-657, May.
    11. Jagmohan S. Raju & V. Srinivasan & Rajiv Lal, 1990. "The Effects of Brand Loyalty on Competitive Price Promotional Strategies," Management Science, INFORMS, vol. 36(3), pages 276-304, March.
    12. Jin-Li Hu & Yu-Hsiu Chiou & Hong Hwang, 2004. "Coupons and price discrimination in vertically-correlated markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 25(1), pages 29-40.
    13. Youyi Feng & Baichun Xiao, 2000. "Optimal Policies of Yield Management with Multiple Predetermined Prices," Operations Research, INFORMS, vol. 48(2), pages 332-343, April.
    14. Wilfred Amaldoss & Sanjay Jain, 2008. "Joint Bidding in the Name-Your-Own-Price Channel: A Strategic Analysis," Management Science, INFORMS, vol. 54(10), pages 1685-1699, October.
    15. Jeuland, Abel P & Narasimhan, Chakravarthi, 1985. "Dealing-Temporary Price Cuts-by Seller as a Buyer Discrimination Mechanism," The Journal of Business, University of Chicago Press, vol. 58(3), pages 295-308, July.
    16. Chen, Jing & Bell, Peter C., 2012. "Implementing market segmentation using full-refund and no-refund customer returns policies in a dual-channel supply chain structure," International Journal of Production Economics, Elsevier, vol. 136(1), pages 56-66.
    17. Gerstner, Eitan & Hess, James D & Holthausen, Duncan M, 1994. "Price Discrimination through a Distribution Channel: Theory and Evidence," American Economic Review, American Economic Association, vol. 84(5), pages 1437-1445, December.
    18. P C Bell & J Chen, 2006. "Cutting costs or enhancing revenues? An example of a multi-product firm with impatient customers illustrates an important choice facing operational researchers," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 57(4), pages 443-449, April.
    19. Ben-Zion, Uri & Hibshoosh, Aharon & Spiegel, Uriel, 1999. "The optimal face value of a discount coupon," Journal of Economics and Business, Elsevier, vol. 51(2), pages 159-174, March.
    20. Tuo Wang & Esther Gal-Or & Rabikar Chatterjee, 2009. "The Name-Your-Own-Price Channel in the Travel Industry: An Analytical Exploration," Management Science, INFORMS, vol. 55(6), pages 968-979, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Lisha & Chen, Jing & Song, Huaming, 2021. "Marketplace or reseller? Platform strategy in the presence of customer returns," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 153(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chew, Ek Peng & Lee, Chulung & Liu, Rujing, 2009. "Joint inventory allocation and pricing decisions for perishable products," International Journal of Production Economics, Elsevier, vol. 120(1), pages 139-150, July.
    2. Cao, Ping & Li, Jianbin & Yan, Hong, 2012. "Optimal dynamic pricing of inventories with stochastic demand and discounted criterion," European Journal of Operational Research, Elsevier, vol. 217(3), pages 580-588.
    3. Chen, Jing & Bell, Peter C., 2012. "Implementing market segmentation using full-refund and no-refund customer returns policies in a dual-channel supply chain structure," International Journal of Production Economics, Elsevier, vol. 136(1), pages 56-66.
    4. Dan Zhang & Larry Weatherford, 2017. "Dynamic Pricing for Network Revenue Management: A New Approach and Application in the Hotel Industry," INFORMS Journal on Computing, INFORMS, vol. 29(1), pages 18-35, February.
    5. Michael N. Katehakis & Yifeng Liu & Jian Yang, 2022. "A revisit to the markup practice of irreversible dynamic pricing," Annals of Operations Research, Springer, vol. 317(1), pages 77-105, October.
    6. Yongbo Xiao & Jian Chen, 2014. "Evaluating the potential effects from probabilistic selling of similar products," Naval Research Logistics (NRL), John Wiley & Sons, vol. 61(8), pages 604-620, December.
    7. Feng, Youyi & Xiao, Baichun, 2006. "Integration of pricing and capacity allocation for perishable products," European Journal of Operational Research, Elsevier, vol. 168(1), pages 17-34, January.
    8. Berk, Emre & Gürler, Ülkü & YIldIrIm, Gonca, 2009. "On pricing of perishable assets with menu costs," International Journal of Production Economics, Elsevier, vol. 121(2), pages 678-699, October.
    9. Marcus, Benjamin & Anderson, Chris K., 2008. "Revenue management for low-cost providers," European Journal of Operational Research, Elsevier, vol. 188(1), pages 258-272, July.
    10. Dasci, A. & Karakul, M., 2009. "Two-period dynamic versus fixed-ratio pricing in a capacity constrained duopoly," European Journal of Operational Research, Elsevier, vol. 197(3), pages 945-968, September.
    11. Namin, Aidin & Soysal, Gonca P. & Ratchford, Brian T., 2022. "Alleviating demand uncertainty for seasonal goods: An analysis of attribute-based markdown policy for fashion retailers," Journal of Business Research, Elsevier, vol. 145(C), pages 671-681.
    12. Adam J. Mersereau & Dan Zhang, 2012. "Markdown Pricing with Unknown Fraction of Strategic Customers," Manufacturing & Service Operations Management, INFORMS, vol. 14(3), pages 355-370, July.
    13. Banerjee, Pradeep K. & Turner, T. Rolf, 2012. "A flexible model for the pricing of perishable assets," Omega, Elsevier, vol. 40(5), pages 533-540.
    14. Wedad Elmaghraby & Altan Gülcü & P{i}nar Keskinocak, 2008. "Designing Optimal Preannounced Markdowns in the Presence of Rational Customers with Multiunit Demands," Manufacturing & Service Operations Management, INFORMS, vol. 10(1), pages 126-148, June.
    15. Ali E. Abbas & Il-Horn Hann, 2010. "Measuring Risk Aversion in a Name-Your-Own-Price Channel," Decision Analysis, INFORMS, vol. 7(1), pages 123-136, March.
    16. Wang, Xiubin & Regan, Amelia, 2006. "Dynamic yield management when aircraft assignments are subject to swap," Transportation Research Part B: Methodological, Elsevier, vol. 40(7), pages 563-576, August.
    17. Pak, K. & Piersma, N., 2002. "airline revenue management," ERIM Report Series Research in Management ERS-2002-12-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    18. Pak, K. & Piersma, N., 2002. "Airline revenue management: an overview of OR techniques 1982-2001," Econometric Institute Research Papers EI 2002-03, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    19. Krämer, Florentin & Schmidt, Klaus M. & Spann, Martin & Stich, Lucas, 2017. "Delegating pricing power to customers: Pay What You Want or Name Your Own Price?," Journal of Economic Behavior & Organization, Elsevier, vol. 136(C), pages 125-140.
    20. Schlosser, Rainer, 2016. "Joint stochastic dynamic pricing and advertising with time-dependent demand," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 439-452.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:annopr:v:268:y:2018:i:1:d:10.1007_s10479-017-2512-5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.