This research examines the impact of the strategic customer behavior in two-period pricing and the inventory decisions in a quick response system. A model with a differentiated value period of product is developed when customers are strategic and heterogeneous. Interestingly, the unique equilibrium is proven to exist if and only if the degree of customer strategic behavior is sufficiently high. Otherwise, the dynamic pricing strategy in one selling season is not a suitable choice for a firm. Moreover, the impact of strategic consumers on pricing and inventory strategies is investigated in the case where the clientele’s taste for product value follows a uniform distribution. Surprisingly, contrary to previous studies, we found that strategic consumers may yield more revenues in specific scenarios. An extended analysis on Beta distribution is also presented, showing that there is greater chance to obtain the highest profit in the supply chain when all customers are strategic and if more people prefer low-value products.

Introduction

Many products, such as electronic items and fashion apparel, decrease in value in one selling season. Some firms use a dynamic pricing strategy to promote the expansion of product demands in order to obtain greater profit. Based on this strategy, a firm dynamically adjusts the prices during different selling periods. It charges high when the product’s value is elevated, and later, when the product’s value has decreased, such items are sold at a marked down price. Advantages of dynamic pricing are well-known in the fashion apparel industry, and in various other Online-to-Offline (O2O) markets. In O2O markets, customers can more readily obtain information on the product’s price than in the traditional offline model. This difference further enhances the implementation of the dynamic pricing approach. For example, famous international companies such as Zara, NIKE, GAP and Uniqlo, apply a dynamic pricing strategy which affects the consumers’ selections. Uniqlo, a Japanese fashion retailer, implements these tactics more successfully. Uniqlo has established that it is more beneficial to reduce the prices at the beginning of the year and sell items at a 50 percent discount during a season, than raise the prices by 30 percent at the end of the year. To execute this strategy, Kana (2016) claims that prices at the Uniqlo online and offline stores are reduced on a weekly basis in a bid to overhaul steep discounts on the weekends, allowing the business to improve its gross profit margin in the last quarter (Kana, 2016).