Product substitution with customer segmentation under panic buying behavior

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Abstract

The problem of satisfying demand with available products is a complex one under consumer panic buying. In reality, most retailers accept alternative products during panic situations. This study considers the case of firm-driven substitution of products (differing in weight) based on retailer preferences over two time periods. In the proposed model, panic behavior and interruption in supply emerged in the first and second time periods, respectively. Under this model, retail stores were segmented into high-indexed (valuable) and low-indexed (less valuable) customers. Before meeting the demand of low-indexed customers, wholesalers attempt to respond to the panic buying behavior of high-indexed customers. To ensure maximum profit in total for a wholesaler, this study considers parameters like optimal substitution quantity, quantity to order, and leftover units. The model is investigated in two cases of with and without substitution. To gain managerial insights, the effect of both degrees of interruption in supply and substitution costs on profits and decisions was investigated. The results can help business managers improve the decision-making process.

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APA

Tsao, Y. C., & Raj, P. V. R. P. (2020). Product substitution with customer segmentation under panic buying behavior. Scientia Iranica, 27(5 E). https://doi.org/10.24200/SCI.2019.5099.1093

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