Advance Selling and Advertising: A Newsvendor Framework

摘要

Many firms offer consumers the opportunity to place advance orders at a discount whenintroducing a new product to the market. Doing so has two main advantages. First, it canincrease total expected sales by exploiting valuation uncertainty of the consumers at theadvance ordering stage. Second, total sales can be estimated more accurately based onthe observed advance orders, reducing the need for safety stock and thereby obsolescencecost. In this research, we derive new insights into trading off these benefits against theloss in revenue from selling at a discount at the advance stage. In particular, we are thefirst to explore whether firms should advertise the advance ordering opportunity. Weobtain several structural insights into the optimal policy, which we show is driven bytwo dimensions: the fraction of consumers who potentially buy in advance (i.e., strategicconsumers) and the size of the discount needed to make them buy in advance. If thediscount is below some threshold, then firms should sell in advance and they shouldadvertise that option if the fraction of strategic consumers is sufficiently large. If thediscount is above the threshold, then firms should not advertise and only sell in advanceif the fraction of strategic consumers is sufficiently small. Graphical displays based onthe two dimensions provide further insights.