Quick Response Under Strategic Consumers with the High-Price and Stockout Regrets

Abstract

We construct two operational systems of a perishable firm, the traditional and quick-response systems, selling to strategic consumers with regrets or without regrets over two periods. When strategic consumers buy the product at the full-price period, they may experience high-price regret. However, stockout regret occurs when they face stockout during the clearance period. Thus, we explore the impacts of regrets and quick response on the optimal outcomes of two operational systems, compare the value of regrets in two operational systems, and analysis the value of quick response with and without regrets. Results show that, in both operational systems, stockout regret has a positive effect on a firm’s optimal pricing and profit, while high-price regret plays the opposite role. Then, in both operational systems, regrets have a positive value when stockout regret is significant, and have a negative value when high-price regret is significant. Second, quick response always has a positive value with and without regrets. Finally, when stockout/high-price regret is significant, the value of regrets in quick-response system (or the value of quick response with regrets) is higher than that in traditional system (or without regrets) when quick-response cost is high/low. In all, for a high quick-response cost, as stockout regret increases (or high-price regret decreases), the firm’s optimal policy may change from the traditional replenishment policy to the quick-response policy.

Keywords: Behavioural OR, Regret behavior, Traditional replenishment policy, Quick response, Strategic consumer behavior