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Timing of service investments for retailers under competition and demand uncertainty

Author

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  • Perdikaki, Olga
  • Kostamis, Dimitris
  • Swaminathan, Jayashankar M.

Abstract

We study how retailers can time their service investments when demand for a product is uncertain and consumers care both about price and service when choosing which retailer to buy from. By “service” we mean activities a retailer can invest in and which can drive traffic into the store. We consider offering extended operating hours as an example of such service and examine the timing of service investments for two competing retailers. Specifically, we analyze two retailers who compete on price and service level, and characterize both the prices and the service levels, as well as the timing of their service investment decisions. Our model also considers two effects of retailer service—the effect on total demand for the product and the effect on a retailer’s market share. We show that investing in service before demand realization, although counterintuitive, can be beneficial for competing retailers. On the other hand, a large mismatch between actual and expected demand and a low probability of high demand justifies the postponement of service investments after observing demand. We also show that the incentive to invest in service before demand realization becomes more pronounced when service investments can increase the overall demand for the product in addition to protecting market share. Our findings have important implications for retailers with regards to the timing of their service investment decisions.

Suggested Citation

  • Perdikaki, Olga & Kostamis, Dimitris & Swaminathan, Jayashankar M., 2016. "Timing of service investments for retailers under competition and demand uncertainty," European Journal of Operational Research, Elsevier, vol. 254(1), pages 188-201.
    • Handle: RePEc:eee:ejores:v:254:y:2016:i:1:p:188-201
    DOI: 10.1016/j.ejor.2016.03.023
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    Cited by:

    1. Fei Zou & Yanju Zhou & Caihua Yuan, 2020. "The Impact of Retailers’ Low-Carbon Investment on the Supply Chain under Carbon Tax and Carbon Trading Policies," Sustainability, MDPI, vol. 12(9), pages 1-27, April.
    2. Karray, Salma & Martín-Herrán, Guiomar, 2022. "The impact of a store brand introduction in a supply chain with competing manufacturers: The strategic role of pricing and advertising decision timing," International Journal of Production Economics, Elsevier, vol. 244(C).
    3. Qinpeng Wang & Longfei He, 2018. "Managing Risk Aversion for Low-Carbon Supply Chains with Emission Abatement Outsourcing," IJERPH, MDPI, vol. 15(2), pages 1-20, February.
    4. Zhang, Qiao & Tang, Wansheng & Zaccour, Georges & Zhang, Jianxiong, 2019. "Should a manufacturer give up pricing power in a vertical information-sharing channel?," European Journal of Operational Research, Elsevier, vol. 276(3), pages 910-928.
    5. Yang, Rui & Tang, Wansheng & Zhang, Jianxiong, 2021. "Technology improvement strategy for green products under competition: The role of government subsidy," European Journal of Operational Research, Elsevier, vol. 289(2), pages 553-568.
    6. Zhang, Qiao & Zhang, Jianxiong & Zaccour, Georges & Tang, Wansheng, 2018. "Strategic technology licensing in a supply chain," European Journal of Operational Research, Elsevier, vol. 267(1), pages 162-175.
    7. Dong, Gang & Zheng, Shiyuan & Lee, Paul Tae-Woo, 2018. "The effects of regional port integration: The case of Ningbo-Zhoushan Port," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 120(C), pages 1-15.
    8. Caliskan Demirag, Ozgun & Xue, Weili & Wang, Jie, 2021. "Retailers’ Order Timing Strategies under Competition and Demand Uncertainty," Omega, Elsevier, vol. 101(C).
    9. Zhang, Shuguang & Dan, Bin & Zhou, Maosen, 2019. "After-sale service deployment and information sharing in a supply chain under demand uncertainty," European Journal of Operational Research, Elsevier, vol. 279(2), pages 351-363.
    10. Junhyun Bae & Li Chen & Shiqing Yao, 2022. "Service Capacity and Price Promotion Wars," Management Science, INFORMS, vol. 68(12), pages 8757-8772, December.
    11. Chen, Wenbo, 2018. "Retailer-driven carbon emission abatement with consumer environmental awareness and carbon tax: Revenue-sharing versus Cost-sharingAuthor-Name: Yang, Huixiao," Omega, Elsevier, vol. 78(C), pages 179-191.
    12. Xu, Man & Tang, Wansheng & Zhao, Ruiqing, 2023. "Should reputable e-retailers undertake service activities along with sales?," Journal of Retailing and Consumer Services, Elsevier, vol. 74(C).
    13. Song, Zhuzhu & Tang, Wansheng & Zhao, Ruiqing, 2018. "Cooperation mode for a liner company with heterogeneous ports: Business cooperation vs. port investment," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 513-533.
    14. Liu, Molin & Dan, Bin & Zhang, Shuguang & Ma, Songxuan, 2021. "Information sharing in an E-tailing supply chain for fresh produce with freshness-keeping effort and value-added service," European Journal of Operational Research, Elsevier, vol. 290(2), pages 572-584.
    15. Rezaee Vessal, Sara & De Giovanni, Pietro & Hassanzadeh, Alborz, 2022. "Technology and service investments in the presence of feature fatigue and word-of-mouth," European Journal of Operational Research, Elsevier, vol. 301(3), pages 923-941.
    16. Ming Liu & Xin Liu & Maoran Zhu & Feifeng Zheng, 2019. "Stochastic Drone Fleet Deployment and Planning Problem Considering Multiple-Type Delivery Service," Sustainability, MDPI, vol. 11(14), pages 1-18, July.

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