Pricing Strategy and Quick Response Adoption System with Strategic Customers

Abstract

This study determined the competitive advantage of a quick response (QR) system when a firm faces forward-looking customers with heterogeneous and uncertain valuations for a product, uncertain demand, and two selling periods. We identify two classes of pricing strategies, namely, no-price commitment strategy and price commitment strategy. Interestingly, the unique equilibrium is proven to exist if and only if most customers have high tastes on a product's value. We also prove that when customers possess beliefs about the markdown in the second period being smaller enough, a firm obtains a high profit with price commitment; otherwise he obtains a high profit without price commitment. Moreover, we distinguish the competitive advantage of a QR system from two strategies. When a firm uses no-price commitment strategy, the value of QR system in the first period decreases and in the second period increases with customer's strategic behavior. When a firm provides price commitment, the value of QR system in the first period may increase, decrease, or decrease first and then increase with customer's strategic behavior. And the value of QR in the second period under price commitment strategy decreases or rises first and then decreases with customer's strategic behavior.