Retailer's Pricing Strategy and Inventory Decision Considering Strategic Consumers'Overconfidence and Risk Aversion
Strategic consumers are those who make deliberate decisions about when to make purchases in order to take advantage of possible discounts or promotions.Extensive research has been conducted on several facets of strategic consumer behavior.Research on risk-averse behavior among strategic consumers has advanced signifi-cantly,with several researchers providing empirical evidence of the presence of risk-averse behavior among strategic consumers.Nevertheless,there has been a limited amount of study available on strategic customers who exhibit overconfidence.Overconfidence conduct arises from the discoveries of cognitive psychology and is a prevalent cognitive bias seen in individuals.Recently,several researchers in the area of operations management have shown interest in it.Consumers may have cognitive biases towards random needs owing to overconfidence while making strategic decisions,as a result of the uncertainty surrounding market demand.Overconfidence among strategic consumers is the inclination for consumers to have excessive faith in their ability to accurately predict demand,even in situations when the consequences are unclear.This demonstrates a propensity for consumers to overestimate their accuracy in anticipating random events.Existing research clearly indicates that overconfidence behavior might cause customers to inaccurately assess the probability of acquiring things,hence impacting consumer decision-making and shop revenues.Hence,we will consider the strategic behavior of consumers by focusing on overconfi-dence and risk-aversion.This research examines the phenomenon of overconfidence and risk-averse behavior among strategic custom-ers.We develop a retailer inventory choice model that examines the impact of customer preferences for fixed pricing and discounted pricing on the selection of retailer pricing strategies and inventory decisions.Additionally,we investigate the correlation between(overconfidence and risk-averse behavior)excessive self-assurance and cautious decision-making.The primary outcomes of this investigation are:1)Retailers see a loss in inventory levels and earnings when they use a discounting strategy.This decrease is more pronounced when consumers are too confident,but it is mitigated when consumers are more risk averse.2)When customer overconfidence levels are low,the retailer's optimum profit is greatly influenced by risk aversion,and the retailer's choice of discounting technique results in increased profits.3)When consumers are too confident,the influence of risk aversion on the retailer's maximum profit is negligible,and the retailer's decision to use a fixed pricing approach results in increased profits.This research has advanced our knowledge of how customer overconfidence and risk aversion affect store pricing tactics and inventory selections.Nevertheless,this research has not included price as a choice variable for the retailer and assumed that the market size remains constant.This conclusion is reached after conducting sensitivity analysis on the impact of pricing and inventory selection mistakes on retailer profits.Exploring the potential benefits of loosening market size restrictions and examining the effects of pricing choices would be worthwhile areas of future investigation.
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