Research on promotional pricing decisions of retailers considering customers’ add-on items return behavior

¹ School of Economics and Management, Tongji University, Shanghai 200092, P.R. China
² Business and Tourism School, Sichuan Agricultural University, Chengdu, Sichuan 611830, P.R. China

^* Corresponding author: 2098643234@qq.com; pw7@163.com

Received: 13 June 2024
Accepted: 14 February 2025

Abstract

This study aims to investigate a retailer’s optimal decisions under “Value Increasing” promotion, where speculative consumers will deliberately purchase add-on items to qualify for discounts if the purchase amount is less than the “Value Increasing” promotional threshold and then return the add-on items after successful payment. The models without and with the “Value Increasing” promotion are established to investigate the effects of speculative consumers’ add-on items refund behavior on the optimal pricing strategies and the optimal profits. The results show that participating in the “Value Increasing” promotional campaigns does not always benefit retailers. When the promotional discounts degree meets the incentive compatibility conditions, a low probability of the product being added by speculative consumers or a small proportion of speculative consumers makes retailers benefit more from participating in the “Value Increasing” promotional campaigns. However, when these conditions are not met, not participating in the “Value Increasing” promotion is better for retailers. Moreover, compared to without “Value Increasing” promotional campaigns, retailers will set a higher regular price to offset the losses associated with speculative returns under the “Value Increasing” promotional campaigns, which may result in consumers’ final price after the discount not necessarily be lower than the price they would pay under non-promotional campaigns.