Optimal introduction time decision for holiday products with uncertain market demand

Abstract

In this paper, we investigate how retailers with different risk preferences determine the optimal introduction time and order quantity for holiday products to maximise performance in environments characterised by uncertain market demand. Specifically, both the market demand and the accuracy of sales forecasts are assumed to be affected by the timing of the introduction, which in turn affects the order quantity and subsequent performance. The results suggest that as the level of uncertainty in the market demand increases, as the retailer’s power in the industry increases and as the coefficient of elasticity of the competitive demand over introduction time is larger, the retailer prefers to set a later introduction time and to order smaller quantities, to reduce the risk of overstocking. Moreover, a risk-averse retailer will set a later introduction time and order smaller quantities than a risk-neutral retailer. Indeed, the more risk-averse the retailer is, the later will be the introduction time and the smaller the quantity ordered. The managerial implications are presented for decision-makers with different risk preferences regarding the interconnections between important factors and introduction time and inventory decisions for holiday products in environments characterised by uncertain market demand.

Keywords:

• lead-time reduction
• operations management
• risk management
• demand uncertainty
• introduction time

Acknowledgements

The authors greatly appreciate the anonymous referees for the valuable suggestions to improve the paper.