Research On The Operation Mechanism And Pricing Decision Of The Online Free-trial Model

With the rapid development of e-commerce and the fierce market competition,the demand is becoming increasingly diverse,and online shopping turns to be universal.Online shopping eliminates the limitation from time and geography so that consumers can do shopping more efficient.While owing to the constraints of being unable to check or try the products before the merchandise,the consumers' willingness to purchase is discounted greatly.Aiming to meet the personalized needs of consumers better,online retailers often provide money-back guarantees to deal with the consumers' pre-purchase concerns.However,online retailers need to bear huge inventory pressure brought by the liberal return policy,which leading to the continuing rise of return costs.As a result,online retailers provide the online free trial service,allowing the consumers to have a physical experience of products before purchase.This service can not only reduce consumers' perceived risk distinctly,but also enhance their willingness to purchase.Correspondingly,the actual purchase rate could be raised.Therefore,research on the operation mechanism and pricing decision of the online free trial model can provide a scientific theory basis for online retailers to develop a new online business model,which is of great theoretical and practical significance.In the above backdrop,based on combination of theories about free trial mode,this paper considers the influencing factors of online consumers' decision-making behavior to analyze the operation mechanism and pricing decision of online free trial model.Main contents include:(1)Operation mechanism of online free trial model.Considering the impacts of the online free trial service on the consumer valuation and taking the consumer's loss-averse characteristics into account,this paper reconstructs the consumer utility function and analyzes the decision process of retailer and consumers in the online free trial mode.Further,this paper develops a model of online free trial service and derives the optimal analytical solutions of pricing and quantity of trial products.Results show that the proportion of consumable product value during the trial period and the psychological loss of consumer brought by returns are key factors to consumer's behavior and retailer's optimal decisions in the three-stage game.When the proportion of consumable product value during the trial period is large,the actual purchase rate would be reduced,and the retailer should raise the sales price and decrease the number of trial products appropriately to improve the expected profits.The psychological loss of consumer brought by returns would have a negative impact on the actual purchase rate.Retailer needs to reduce the sales price and increase the number of trial products to stimulate demand.(2)Unified pricing problem when online retailer provides both service modes of online free trial and money-back guarantees.Considering the consumers' preference of service modes,this paper constructs the consumer utility functions when two service modes coexist,and then introduces them into the unified pricing model.Further,this paper investigates the quality of optimal strategies via numerical example.It is found that,when the proportion of consumers choosing online free trial mode is large,it's beneficial for retailer to reduce the sales price to increase expected profits.The retailer should change the sales price with the initial product valuation in the same direction in order to improve both the actual purchase rate in each service mode and expected profits.