A Retailer’s Decision to Join a Promotional Event of an E-commerce Platform

ABSTRACT

Promotional events on e-commerce platforms (e.g., November 11 in China and Cyber Monday in the United States) have become very popular. Retailers joining these promotions sell their products on the e-commerce platform at a discount. We analyze a retailer’s decision to join the e-promotion of the platform versus offering a discount on its own. Given the platform’s discount factor and fees, we determine the retailer’s optimal prices and the quantity to commit to the e-promotion. Our findings indicate that if the platform can help the retailer make more consumers aware of the discount, then the retailer should join the e-promotion and set the prices such that no sales to strategic consumers take place for some time interval before the e-promotion. Under incomplete information where the retailer can create a rationing risk, it may be optimal to join the e-promotion even if the platform makes fewer consumers aware of the promotion and the platform charges considerable fees. Furthermore, advance selling is found not to increase profit under complete information but to increase profit under incomplete information. Surprisingly, incomplete information on the part of consumers benefits them by lowering the average price of the product and increasing the quantity sold.

KEYWORDS AND PHRASES:

• E-retail
• online discounting
• online pricing
• online promotions
• online retail
• retail operations

Additional information

Notes on contributors

Moutaz Khouja

Moutaz Khouja ([email protected]; corresponding author) is a professor of operations and supply chain management at the University of North Carolina at Charlotte. He received his Ph.D. in operations management from Kent State University. His areas of research interest include inventory management, supply chain management, e-commerce, and the operations-marketing interface. Dr. Khouja has published 90 papers in refereed academic journals. His publications have appeared in Journal of Management Information Systems, Decision Sciences, Production and Operations Management, IIE Transactions, Journal of the Operational Research Society, Naval Research Logistics, and other journals.

Xin Liu

Xin Liu ([email protected]) is an assistant professor of management at Elon University. She received her doctorate in management science and engineering from University of Science and Technology of China. Her research interests include operations management, supply chain management, and e-retailing. Her recent publications have appeared in the European Journal of Operational Research, Omega, and Journal of the Operational Research Society.