Valuation Bias’ Effect Research Optimal Selling Strategies For Sellers

When E-commerce becomes more mature and popular, online sale has been a dominant channel for firms. Through surfing on the Internet, the process of purchasing is convenient when consumers buy their wanted items. While often, the actual product is not as good as the seller described it to be or it does not meet the consumer’s original expectation. The resulting disappointment with the purchase leads to product returns. Consequently, the difference between initial valuation and actual valuation would affect the firms’decisions and profit definitely.Based on the above market environment, this paper is divided in two main parts in which taking the effect of valuation bias on consumers and firms into consideration and exploring the firm’s responded selling strategies. For consumers, the valuation bias actually brings them uncertainties in their initial valuation which would further lead to product returns. The firm’s selling strategies include optimal pricing, optimal ordering quantity and whether pre-releasing pricing information or not.The first main part discusses the firm’s selling strategies mentioned above in single sale period and two sale periods under certain demand model, respectively. The optimal price is found to always increase in the valuation bias if and only if the valuation bias does not exceed the consumer’s return cost; otherwise, the optimal price stays constant. This result remains true whether or not the seller can decide the stocking quantity. Furthermore, aside from the valuation bias, we also take into account strategic consumer reactions to the bias in two periods referred to advance period and spot period. Our analysis shows that the seller’s selling strategies are crucially affected by the relationship between valuation bias and the strategic consumer estimation of the bias. In addition, the optimal selling period is either the advance selling term or the spot selling term, and the seller does not need to provide both periods sequentially. We also find that the unannounced pricing trend strategy and the announced non-increasing pricing trend strategy are equivalent when the seller faces strategic consumers.The other part expands the single period model and explores the firm’s optimal pricing, refund and ordering quantity under random price-sensitivity demand. Two kinds of relationships between consumer’s initial valuation and the true valuation are used to depict the valuation bias environment more generally:(1) the initial valuation is independent from the true valuation and (2) the initial valuation is related to the true valuation. First, based on these two kinds of relationships, two corresponded models are built and optimal ordering quantity are given (in addition, we also analyze the optimal refund as an extension); furthermore, through analyzing the optimal decisions and expected profits in two models, it is found that each model just can be conditionally optimal and the benchmark of the two models is given; at last, numerical study brings more interesting results.