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Probabilistic Goods: A Creative Way of Selling Products and Services

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Author Info

  • Scott Fay

    ()
    (Department of Marketing, University of Florida, Gainesville, Florida 32611)

  • Jinhong Xie

    ()
    (Department of Marketing, University of Florida, Gainesville, Florida 32611)

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    Abstract

    This paper defines a unique type of product or service offering, termed , and analyzes a novel selling strategy, termed (PS). A probabilistic good is not a concrete product or service but an offer involving a probability of getting any one of a set of multiple distinct items. Under the probabilistic selling strategy, a multi-item seller creates probabilistic goods using the existing distinct products or services and offers such probabilistic goods as additional purchase choices. The probabilistic selling strategy allows sellers to benefit from introducing a new type of buyer uncertainty, i.e., uncertainty in product assignments. First, introducing such uncertainty enables sellers to create a “virtual” product or service (i.e., probabilistic good), which opens up a creative way to segment a market. We find that the probabilistic selling strategy is a general marketing tool that has the potential to benefit sellers in many different industries. Second, this paper shows that creating buyer uncertainty in product assignments is a new way for sellers to deal with their own market uncertainty. We illustrate two such benefits: (a) offering probabilistic goods can reduce the seller's information disadvantage and lessen the negative effect of demand uncertainty on profit, and (b) offering probabilistic goods can solve the mismatch between capacity and demand and enhance efficiency. Emerging technology is creating exciting (previously unfeasible) opportunities to implement PS and to obtain these many advantages.

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    File URL: http://dx.doi.org/10.1287/mksc.1070.0318
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    Bibliographic Info

    Article provided by INFORMS in its journal Marketing Science.

    Volume (Year): 27 (2008)
    Issue (Month): 4 (07-08)
    Pages: 674-690

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    Handle: RePEc:inm:ormksc:v:27:y:2008:i:4:p:674-690

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    Related research

    Keywords: probabilistic selling; probabilistic goods; opaque goods; pricing; product differentiation; e-commerce; yield management; inventory management; product line; price discrimination;

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    Citations

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    Cited by:
    1. Rosato, Antonio, 2013. "Selling Substitute Goods to Loss-Averse Consumers: Limited Availability, Bargains and Rip-offs," MPRA Paper 47168, University Library of Munich, Germany.
    2. Scott Fay, 2009. "Competitive reasons for the Name-Your-Own-Price channel," Marketing Letters, Springer, vol. 20(3), pages 277-293, September.
    3. Jochen Goensch & Claudius Steinhardt, 2013. "Using Dynamic Programming Decomposition for Revenue Management with Opaque Products," BuR - Business Research, German Academic Association for Business Research, vol. 6(1), pages 94-115, May.

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