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Probabilistic Goods: A Creative Way of Selling Products and Services

Author

Listed:
  • Scott Fay

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

  • Jinhong Xie

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

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.

Suggested Citation

  • Scott Fay & Jinhong Xie, 2008. "Probabilistic Goods: A Creative Way of Selling Products and Services," Marketing Science, INFORMS, vol. 27(4), pages 674-690, 07-08.
  • Handle: RePEc:inm:ormksc:v:27:y:2008:i:4:p:674-690
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    File URL: http://dx.doi.org/10.1287/mksc.1070.0318
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Yong Chao & Lin Liu & Dongyuan Zhan, 2016. "Vertical Probabilistic Selling under Competition: the Role of Consumer Anticipated Regret," Working Papers 16-14, NET Institute.
    2. Antonio Rosato, 2016. "Selling substitute goods to loss-averse consumers: limited availability, bargains, and rip-offs," RAND Journal of Economics, RAND Corporation, vol. 47(3), pages 709-733, August.
    3. Courty, Pascal & Liu, Wenyu, 2013. "Opaque Selling: Static or Inter-Temporal Price Discrimination?," CEPR Discussion Papers 9463, C.E.P.R. Discussion Papers.
    4. repec:eee:transe:v:103:y:2017:i:c:p:248-260 is not listed on IDEAS
    5. Wilfred Amaldoss & Sanjay Jain, 2008. "Joint Bidding in the Name-Your-Own-Price Channel: A Strategic Analysis," Management Science, INFORMS, vol. 54(10), pages 1685-1699, October.
    6. Xiaoqing Jing & Jinhong Xie, 2011. "Group Buying: A New Mechanism for Selling Through Social Interactions," Management Science, INFORMS, vol. 57(8), pages 1354-1372, August.
    7. repec:eee:proeco:v:193:y:2017:i:c:p:590-601 is not listed on IDEAS
    8. Scott Fay, 2009. "Competitive reasons for the Name-Your-Own-Price channel," Marketing Letters, Springer, vol. 20(3), pages 277-293, September.
    9. Scott Fay & Jinhong Xie, 2010. "The Economics of Buyer Uncertainty: Advance Selling vs. Probabilistic Selling," Marketing Science, INFORMS, vol. 29(6), pages 1040-1057, 11-12.
    10. Yubo Chen & Jinhong Xie, 2008. "Online Consumer Review: Word-of-Mouth as a New Element of Marketing Communication Mix," Management Science, INFORMS, vol. 54(3), pages 477-491, March.
    11. Jeffrey D. Shulman & Anne T. Coughlan & R. Canan Savaskan, 2011. "Managing Consumer Returns in a Competitive Environment," Management Science, INFORMS, vol. 57(2), pages 347-362, February.
    12. Malgorzata Ogonowska, 2012. "Selling Tourism Products through the Opaque Channels," Post-Print halshs-01219441, HAL.
    13. Kinshuk Jerath & Serguei Netessine & Senthil K. Veeraraghavan, 2010. "Revenue Management with Strategic Customers: Last-Minute Selling and Opaque Selling," Management Science, INFORMS, vol. 56(3), pages 430-448, March.
    14. Zheyin Gu & Giri Tayi, 2015. "Consumer mending and online retailer fit-uncertainty mitigating strategies," Quantitative Marketing and Economics (QME), Springer, vol. 13(3), pages 251-282, September.

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