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Electronic price-testing scheme for fashion retailing with information updating

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  • Choi, Tsan-Ming
  • Chow, Pui-Sze
  • Xiao, Tiaojun

Abstract

Pricing is a crucial decision for electronic fashion retailers. Motivated by various observed industrial practices in electronic retailing, we study in this paper the optimal Internet pricing schemes which employ price testing with Bayesian information updating following the Bernoulli process. This paper contributes to the literature and advancement of knowledge in a number of ways: (i) we propose an analytical model to study the Internet pricing problem with price-testing and Bayesian information updating for fashion retailers. (ii) We derive the closed-form expressions of the expected value of sampling information (EVSI) and the expected value of perfect information (EVPI) under the price testing scheme. (iii) We conduct the pre-posterior analysis and construct the optimal sampling plan with three different rules. (iv) We develop the optimal posterior pricing policies, with respect to the mean-risk and Value-at-Risk (VaR) objectives. Numerical analyses, which include the studies on EVPI and the efficient frontiers, are presented to generate more insights.

Suggested Citation

  • Choi, Tsan-Ming & Chow, Pui-Sze & Xiao, Tiaojun, 2012. "Electronic price-testing scheme for fashion retailing with information updating," International Journal of Production Economics, Elsevier, vol. 140(1), pages 396-406.
    • Handle: RePEc:eee:proeco:v:140:y:2012:i:1:p:396-406
    DOI: 10.1016/j.ijpe.2012.06.021
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    References listed on IDEAS

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    3. Hong, Zhaofu & Li, Mengfan & Han, Xiaoya & He, Xuhuai, 2020. "Innovative green product diffusion through word of mouth," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 134(C).
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    5. Zhou, Haijie & Chen, Kebing & Wang, Shengbin, 2023. "Two-period pricing and inventory decisions of perishable products with partial lost sales," European Journal of Operational Research, Elsevier, vol. 310(2), pages 611-626.
    6. Chun-Hung Chiu & Shui-Hung Hou & Xun Li & Wei Liu, 2017. "Real options approach for fashionable and perishable products using stock loan with regime switching," Annals of Operations Research, Springer, vol. 257(1), pages 357-377, October.
    7. Ibrahim, Michael Nawar & Atiya, Amir F., 2016. "Analytical solutions to the dynamic pricing problem for time-normalized revenue," European Journal of Operational Research, Elsevier, vol. 254(2), pages 632-643.
    8. Niu, Baozhuang & Chen, Lei & Zhang, Jie, 2017. "Punishing or subsidizing? Regulation analysis of sustainable fashion procurement strategies," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 107(C), pages 81-96.
    9. Ya-Jun Cai & Yingjia Wang & Juzhi Zhang, 2020. "Enhancing e-platform business by customer service systems: a multi-methodological case study on Ali Wangwang instant message’s impacts on TaoBao," Annals of Operations Research, Springer, vol. 291(1), pages 59-81, August.
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