A Comparative Study on Retailer’s Refunding Strategies Considering Products Advance Selling

Abstract

Advance selling through pre-orders is a strategy to transfer inventory risk from a retailer to consumers. Refunding strategy can reduce strategic consumers' pre-order risk caused by valuation uncertainty so as to encourage pre-orders. A newsvendor retailer can have three refunding strategies to choose from: no refunding allowed, partial refunding and full refunding. This research studies how a retailer could design a refunding strategy in the advance selling problem to maximize her own profits. We find some interesting results. For example, compared with no refunding allowed strategy, customers in partial refunding strategy can bear higher advance selling price, which has a positive effect on the retailer's profit. In full refunding strategy, more customers will return and the margin profit earned from these customers will be lower than that in partial refunding strategy, leading to lower profit in full refunding strategy.