Retailer-Driven Blind Boxes in a Decentralized Supply Chain

Posted: 21 Sep 2021

See all articles by Ashutosh Prasad

Ashutosh Prasad

University of California, Riverside (UCR)

Lifei Sheng

University of Houston Clear Lake

Xuying Zhao

Texas A&M University - Mays Business School; University of Notre Dame

Date Written: September 18, 2021

Abstract

Blind boxes (also called mystery boxes, gift boxes, or opaque boxes) are relatively recent concepts by retailers such as Birchbox and Stichfix. The distinguishing feature of a blind box is that its content remains uncertain until the customer purchases the box and opens it. This paper examines a blind box strategy in a decentralized supply chain where the retailer can design the box by choosing, with some inclusion probability, from horizontally differentiated products produced by a manufacturer. We find that a determinant factor in whether the retailer should offer a blind box is the ratio of products’ profit potential to consumers’ product preference strength. The blind box is unprofitable if this ratio is too low or too high. Furthermore, we explore how the retailer should manage the manufacturer’s wholesale price response when selling blind boxes. We find that the retailer should preemptively communicate the product inclusion probability before wholesale prices are set. Interestingly, the optimal product inclusion probability is asymmetric even when products have symmetric wholesale prices and production costs.

Keywords: Blind Box, Revenue Management, Retailing, Opaque Goods, Supply Chain

Suggested Citation

Prasad, Ashutosh and Sheng, Lifei and Zhao, Xuying, Retailer-Driven Blind Boxes in a Decentralized Supply Chain (September 18, 2021). Available at SSRN: https://ssrn.com/abstract=3926319

Ashutosh Prasad

University of California, Riverside (UCR)

900 University Avenue
Riverside, CA CA 92521
United States

Lifei Sheng (Contact Author)

University of Houston Clear Lake ( email )

2700 Bay Area Blvd
Houston, TX 77058

Xuying Zhao

Texas A&M University - Mays Business School ( email )

Wehner 401Q, MS 4353
College Station, TX 77843-4218
United States

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

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