A Joint Optimal Model of Pricing, Rebate Value, and Redemption Hassle

Forthcoming in Decision Sciences

55 Pages Posted: 26 Dec 2018

See all articles by Zelin Zhang

Zelin Zhang

Renmin University of China

Peter T. L. Popkowski Leszczyc

University of Queensland - Business School

Riliang Qu

Central University of Finance and Economics (CUFE)

Kissan Joseph

University of Kansas - School of Business

Date Written: December 4, 2018

Abstract

Although rebates are widely employed, redemption is not effort-free, and the hassle of redemption is an important decision variable for buyers. The current research examines the impact of hassle cost on optimal rebate strategy. An analytical model is developed that simultaneously determines the supply chain’s optimal price, level of rebate value, and rebate-redemption hassle, while allowing for slippage (as consumers may forget to redeem a rebate), in both a centralized and decentralized supply chain. Results show that the level of rebate-redemption hassle plays a key role in segmenting the market into rebate and non-rebate purchasers. Whereas in a centralized supply chain redemption hassle should increase in a convex manner with valuations, no such restrictions exist in a decentralized supply chain. This difference is due to double marginalization, which results in higher retail prices in the decentralized supply chain. Rebates can be used to reduce this double marginalization. Furthermore, a manufacturer in a decentralized supply should offer a more attractive rebate than in a centralized supply chain. We also find that changes in the supply chain’s optimal price and rebate strategy are non-linear and non-monotonic in both production cost and in the elasticity for consumers’ disutility for hassle. Finally, findings are all supported by results from numerical analyses. Overall, our work contributes theoretically and managerially to the study of rebates by jointly considering price, rebate value, and redemption hassle.

Keywords: pricing, rebates, redemption hassle, segmentation, centralized and decentralized supply chain

JEL Classification: C7, D1, D4, M21, M31

Suggested Citation

Zhang, Zelin and Popkowski Leszczyc, Peter T. L. and Qu, Riliang and Joseph, Kissan, A Joint Optimal Model of Pricing, Rebate Value, and Redemption Hassle (December 4, 2018). Forthcoming in Decision Sciences. Available at SSRN: https://ssrn.com/abstract=3296103

Zelin Zhang

Renmin University of China ( email )

Room B906
Xianjin Building
Beijing, Beijing 100872
China

Peter T. L. Popkowski Leszczyc (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Riliang Qu

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Kissan Joseph

University of Kansas - School of Business ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States
785-864-7535 (Phone)
785-864-5328 (Fax)

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