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The pricing of product and value-added service under information asymmetry: a product life cycle perspective

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  • Xumei Zhang
  • Xiaopeng Han
  • Xiangyu Liu
  • Ru Liu
  • Jinzhong Leng

Abstract

Facing fierce competition in the global manufacturing industry, manufacturers have begun developing value-added services to increase their competitiveness. One type of sales strategy that has become prevalent is for companies to offer consumers, a relatively low price for value-added services when consumers buy the services simultaneously with the product and a relatively high price for the same value-added services in the future. Considering the degree of information asymmetry about service quality and the changes of it in a product life cycle, this paper examines the pricing of product and value-added service. Four types of pricing strategies are proposed that depend on the time that consumers choose to buy the value-added service. In addition, the results of our study show that a manufacturer choosing a pricing strategy should consider the degree of information asymmetry and consumers’ initial expectations regarding the value-added service quality. When consumers’ initial expectations regarding the value-added service quality are high, the manufacturer should choose one of the four pricing strategies that encourage consumers to buy the service simultaneously with the product. When consumers’ initial expectations regarding the value-added service quality are low, the optimal strategy for the manufacturer depends on the difference in the degree of information asymmetry.

Suggested Citation

  • Xumei Zhang & Xiaopeng Han & Xiangyu Liu & Ru Liu & Jinzhong Leng, 2015. "The pricing of product and value-added service under information asymmetry: a product life cycle perspective," International Journal of Production Research, Taylor & Francis Journals, vol. 53(1), pages 25-40, January.
    • Handle: RePEc:taf:tprsxx:v:53:y:2015:i:1:p:25-40
    DOI: 10.1080/00207543.2014.922707
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    Cited by:

    1. Weihua Liu & Shangsong Long & Yanjie Liang & Jinkun Wang & Shuang Wei, 2023. "The influence of leadership and smart level on the strategy choice of the smart logistics platform: a perspective of collaborative innovation participation," Annals of Operations Research, Springer, vol. 324(1), pages 893-935, May.
    2. Pan, Jeh-Nan & Nguyen, Hung Thi Ngoc, 2015. "Achieving customer satisfaction through product–service systems," European Journal of Operational Research, Elsevier, vol. 247(1), pages 179-190.
    3. Feng Fu & Shuangying Chen & Wei Yan, 2023. "Implications of e-tailers’ transition from reselling to the combined reselling and agency selling," Electronic Commerce Research, Springer, vol. 23(3), pages 1885-1920, September.
    4. Li, Hengyu & Chen, Huangen & Chai, Junwu & Shi, Victor, 2023. "Private label sourcing for an e-tailer with agency selling and service provision," European Journal of Operational Research, Elsevier, vol. 305(1), pages 114-127.
    5. Shiming Yi & Liying Yu & Ziyuan Zhang, 2020. "Research on Pricing Strategy of Dual-Channel Supply Chain Based on Customer Value and Value-Added Service," Mathematics, MDPI, vol. 9(1), pages 1-19, December.
    6. Luay Jum’a & Muath Esam Basheer, 2023. "Analysis of Warehouse Value-Added Services Using Pareto as a Quality Tool: A Case Study of Third-Party Logistics Service Provider," Administrative Sciences, MDPI, vol. 13(2), pages 1-23, February.
    7. Yuyang Tan & Chunxiang Guo & Dong Cai, 2023. "Value‐added service decision and coordination under fresh produce e‐commerce considering order cancelation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 2199-2210, June.
    8. Tianjian Yang & Chunmei Li & Xiongping Yue & Beibei Zhang, 2022. "Decisions for Blockchain Adoption and Information Sharing in a Low Carbon Supply Chain," Mathematics, MDPI, vol. 10(13), pages 1-23, June.
    9. Yanan Ji & Yi Li & Wenzhi Tang, 2022. "Service Investment and Pricing Strategies in E-Commerce Platforms With Seller Competition," International Journal of Information Systems and Supply Chain Management (IJISSCM), IGI Global, vol. 15(1), pages 1-21, January.
    10. Zheng, Zhijun & Li, Gang & Cheng, T.C.E & Wu, Feng, 2022. "Offline supplementary service strategies for the online marketplace: Third-party service or marketplace service?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).
    11. Liu, Weihua & Yan, Xiaoyu & Wei, Wanying & Xie, Dong, 2019. "Pricing decisions for service platform with provider’s threshold participating quantity, value-added service and matching ability," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 122(C), pages 410-432.

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