Green product design considering functional-product reference

Consumers' reference behaviors are largely ignored in previous research on green product design. This study investigates a green-product design problem in a two-echelon supply chain by considering consumers' reference behaviors, where the reference point is associated with a functional product that has a utility-based reference form. Tax regulation and the environmental awareness of consumers are also considered in investigating their effects on the green-product design and pricing strategies. Analytical results show that consumers' reference behaviors significantly influence the green-product design and pricing decisions. When faced with consumers who have different recognition levels of reference, the product design and pricing strategies should be adjusted. Tax regulation and consumer green awareness also affect the firms' decisions. Tax regulation can encourage firms to increase the greenness degree of their product only when the tax level or the green development cost is at a low level, while consumer green awareness always plays a positive role in green design. By comparing the results between different supply chain structures, we find that the retailer-led supply chain outperforms the manufacturer-led supply chain in environmental performance improvements. The best environmental performance is achieved when the supply chain is coordinated.