A manufacturer invests in product quality to encourage consumers who have purchased in the past to substitute their current product version with a new release. Since price deters the adoption of an upgraded quality product, consumers evaluate both the quality improvements and the new release price before deciding whether to return a good. The returns can be either voluntary (passive returns) or dependent on the firm’s controls (active returns), while the pricing strategies can be either fixed (constant intertemporal pricing) or varying over time (updated intertemporal pricing) depending on the quality improvements. By combining these two ingredients (return type and pricing policy) we formulate a two-period model in which a manufacturer invests in quality improvements and sets the product prices over time. Our results show that when consumers passively return old product versions, the manufacturer should always update its pricing strategies according to the quality improvements. However, when consumer returns are sensitive to quality improvements and price, the manufacturer can be indifferent between setting a constant or an updated pricing policy depending on the effect that quality has on returns. If the manufacturer can choose between a market in which consumer returns are passive or active, it decides according to how quality impacts the returns: When the consumers’ willingness to return according to the quality effect is negligible, the manufacturer prefers to work in a market with passive attitudes towards returns. While the choice of updating the price is always dominant from an economic point of view, it turns out to be suboptimal from an environmental perspective when the effects of quality and price on returns are balanced. When the price effect on returns also depends on the discount granted to consumers, then the discrepancy between economic and environmental returns is amplified.

Optimal quality improvements and pricing strategies with active and passive product returns / De Giovanni, P; Zaccour, G. - In: OMEGA. - ISSN 0305-0483. - 88:(2019), pp. 248-262. [10.1016/j.omega.2018.09.007]

Optimal quality improvements and pricing strategies with active and passive product returns

De Giovanni P
;
2019

Abstract

A manufacturer invests in product quality to encourage consumers who have purchased in the past to substitute their current product version with a new release. Since price deters the adoption of an upgraded quality product, consumers evaluate both the quality improvements and the new release price before deciding whether to return a good. The returns can be either voluntary (passive returns) or dependent on the firm’s controls (active returns), while the pricing strategies can be either fixed (constant intertemporal pricing) or varying over time (updated intertemporal pricing) depending on the quality improvements. By combining these two ingredients (return type and pricing policy) we formulate a two-period model in which a manufacturer invests in quality improvements and sets the product prices over time. Our results show that when consumers passively return old product versions, the manufacturer should always update its pricing strategies according to the quality improvements. However, when consumer returns are sensitive to quality improvements and price, the manufacturer can be indifferent between setting a constant or an updated pricing policy depending on the effect that quality has on returns. If the manufacturer can choose between a market in which consumer returns are passive or active, it decides according to how quality impacts the returns: When the consumers’ willingness to return according to the quality effect is negligible, the manufacturer prefers to work in a market with passive attitudes towards returns. While the choice of updating the price is always dominant from an economic point of view, it turns out to be suboptimal from an environmental perspective when the effects of quality and price on returns are balanced. When the price effect on returns also depends on the discount granted to consumers, then the discrepancy between economic and environmental returns is amplified.
Product collection, Quality improvements, PriceReturn rate, Two-period model
File in questo prodotto:
File Dimensione Formato  
6 Optimal quality improvements and pricing strategies with active.pdf

Solo gestori archivio

Tipologia: Documento in Pre-print
Licenza: DRM non definito
Dimensione 2.68 MB
Formato Adobe PDF
2.68 MB Adobe PDF   Visualizza/Apri
De Giovanni_Optimal quality_2019.pdf

Solo gestori archivio

Tipologia: Versione dell'editore
Licenza: DRM non definito
Dimensione 2.69 MB
Formato Adobe PDF
2.69 MB Adobe PDF   Visualizza/Apri
Pubblicazioni consigliate

Caricamento pubblicazioni consigliate

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11385/190310
Citazioni
  • Scopus 31
  • ???jsp.display-item.citation.isi??? 31
social impact