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Optimal ordering and pricing decisions for a company issuing product-specific gift cards

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  • Zhang, Qinhong
  • Zhang, Dali
  • Segerstedt, Anders
  • Luo, Jianwen

Abstract

In this paper, we investigate gift card's influence on retailers’ ordering decisions and analyse the benefits of issuing product-specific gift cards. We propose an optimal ordering model for retailers’ decision problems with gift cards being issued. We also solve the problem with the analytical forms of optimal order quantities and expected profits. By comparing the results with the classical newsvendor problem, we classify the benefits of issuing gift cards into three categories: (1) the demand stimulating; (2) the pre-payment, and (3) the non-redemption. We step further to explore a retailer's problem on how to determine the optimal discount for gift cards, which is characterized by a joint optimal policy on the ordering quantity and the discount. We derive the optimal condition on this joint policy. Numerical examples are conducted to illustrate the model results and analyse the influences of parameters. A sample average approximation method is also been introduced to solve the optimization model.

Suggested Citation

  • Zhang, Qinhong & Zhang, Dali & Segerstedt, Anders & Luo, Jianwen, 2018. "Optimal ordering and pricing decisions for a company issuing product-specific gift cards," Omega, Elsevier, vol. 74(C), pages 92-102.
    • Handle: RePEc:eee:jomega:v:74:y:2018:i:c:p:92-102
    DOI: 10.1016/j.omega.2017.01.009
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    References listed on IDEAS

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    1. Jennifer Pate Offenberg, 2007. "Markets: Gift Cards," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 227-238, Spring.
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    Cited by:

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    5. Khouja, Moutaz & Hammami, Ramzi, 2023. "Optimizing price, order quantity, and return policy in the presence of consumer opportunistic behavior for online retailers," European Journal of Operational Research, Elsevier, vol. 309(2), pages 683-703.
    6. Eliza Nichifor & Radu Constantin Lixăndroiu & Silvia Sumedrea & Ioana Bianca Chițu & Gabriel Brătucu, 2021. "How Can SMEs Become More Sustainable? Modelling the M-Commerce Consumer Behaviour with Contingent Free Shipping and Customer Journey’s Touchpoints Optimisation," Sustainability, MDPI, vol. 13(12), pages 1-27, June.
    7. Yuefeng Li & Jingming Pan & Jing Zhou, 2022. "Optimal pricing with free gift cards in a two-product supply chain," Flexible Services and Manufacturing Journal, Springer, vol. 34(1), pages 125-155, March.
    8. Qinhong Zhang & Xinyue Cheng & Yu-Chung Tsao & Dali Zhang, 2022. "Advance selling under deposit expansion and consumer’s valuation change," Operational Research, Springer, vol. 22(4), pages 3633-3661, September.
    9. Hua, Guowei & Zhang, Yi & Cheng, T.C.E. & Wang, Shouyang & Zhang, Juliang, 2020. "The newsvendor problem with barter exchange," Omega, Elsevier, vol. 92(C).

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