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Markdown retailers can survive the entry of an everyday low price retailer into a highly competitive market by manipulating price, product availability, and the regret consumers feel when they pay too much or wait till a product is unavailable to buy it, according to a new study. The results explain why markdown pricing remains ubiquitous in spite of the simplicity and marketing and operational advantages of everyday low pricing.
Retail pricing comes in two main varieties. In the first, known as markdown pricing, the retailer offers the product at one price early in the season and at a discounted price later. The other option, called everyday low price, is to offer goods at the same price with no or limited markdowns.
Elodie - Adida - Goodman - Associate - Professor
Elodie Adida Goodman, an associate professor of operations and supply chain management at the UC Riverside School of Business, and Özalp Özer, a professor of management science at the University of Texas at Dallas, wondered if retailers can use either of these strategies as a defense against a competitor entering the market.
Goodman and Özer designed a model that assigned values not only to pricing strategies and retail outcomes, but also to a less-studied factor: consumer regret. If the consumer buys a product at the original price early in the season they might experience "high price regret" when it goes on sale later. But waiting can lead to "availability regret" if the product sells out before it goes on sale.
Price - Retailers - Dilemma - Price - Retailer
Everyday low price retailers straddle this dilemma by offering a constant price lower than the markdown retailer's original price, but higher than its sale price.
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