Introduction to the Special Issue on Marketing and Operations Management Interfaces and Coordination

In traditional operations management literature, consumers are passive so that the resulting demand functions are often modeled as well‐defined and exogenously specified functions of price and/or other product attributes such as quality (see Dana 2008; Dietrich 2008). The advent of Internet has allowed many companies to customize their pricing strategies based on customer characteristics, time of purchase, and pricing and product information (see Bichler and Steinberg 2007). This special issue presents a collection of papers that models consumer's purchasing decisions under different pricing schemes and investigates their implications on firms' profit.

Su (2009) introduces a model to capture a phenomenon called “inertia” that tends to induce consumers to postpone their purchases even when it is optimal for them to buy immediately. He first shows that the inertia phenomenon is consistent with various well‐established behavioral regularities such as loss aversion, probability weighting, and hyperbolic time preferences. Then, by developing a two‐period dynamic pricing model that incorporates the fact that a proportion of the consumers are inertial, he shows that the depth of inertia (i.e., strength of inertial effects) always hurts the seller's profit. However, the breadth of inertia (i.e., the proportion of inertial consumers) may be beneficial. By using these results, he offers recommendations for firms to influence both depth and breadth of inertial consumers so as to improve profit.

Elmaghraby et al. (2009) examine a problem arising from a situation when a firm pre‐announces the regular selling price and the post‐season clearance price in advance. Given the price information, they analyze two operating regimes. The “no reservation regime” allows a buyer either to purchase the product at the regular price when he arrives or to enter a lottery to purchase at the clearance price if the product remains unsold. The “non‐withdrawable reservation regime” offers each buyer one extra option than the no reservation regime: reserve the product for purchase at the clearance price. They first characterize the strategic purchasing behavior of each arriving customer. They then show that the strategic customer behavior can render the customer to be worse off and the retailer to be better off under the non‐withdrawable reservation regime that offers one extra option (reservation). Hence, more purchasing options do not necessarily benefit customers. Also, they show how to determine regular and clearance prices so that the seller can improve profit.

Tilson et al. (2009) consider a manufacturer who sells and leases a limited supply of durable goods in two different channels: individual consumers and corporate clients. They present a two‐period model in which individual consumers can either buy or lease the product in each period, while the corporate clients would lease the product in each period. By assuming that each player seeks to maximize its own payoff over an infinite horizon, they present a sequential dynamic game that captures the interactions among the manufacturer, individual consumers, and corporate clients. They characterize the optimal stocking and pricing decisions for each channel in each period.

Hall et al. (2009) consider a make‐to‐order manufacturer that serves two customer classes: core customers who pay a fixed negotiated price, and “fill‐in” customers who make submittal decisions based on instantaneous price set by the firm. By using a Markovian queueing model, they examine how a firm can improve its profit from adopting different state‐dependent pricing policies. Specifically, they show how a simple state‐dependent pricing (constant pricing up to a cutoff state) policy can enable a firm to generate a much higher profit than a state‐independent pricing scheme.

Cho et al. (2009) examine the value of rebate programs by presenting a model for evaluating the conditions under which a manufacturer and/or a retailer should offer rebates in a competitive environment. Specifically, they consider a two‐level supply chain comprising one manufacturer and one retailer. Each firm (manufacturer or retailer) makes three decisions: the regular (wholesale or retail) price, whether or not to offer rebates, and the rebate value should the firm decide to launch a rebate program. They determine the equilibrium of a Stackelberg game between the manufacturer (leader) and the retailer (follower), and provide insights about how competition affects the conditions under which a firm should offer rebates in equilibrium.