An Integrated Randomized Pricing Strategy for Omni-Channel Retailing

Abstract

ABSTRACT Omni-channel supply chains provide customers with increased convenience to experience products and gather price information. Having more information under omni-channel retailing means customers can strategically choose where to purchase (which retail channel) and when to purchase (purchase now or later), which makes channel integration a challenge for omni-channel retailers. This paper focuses on the joint pricing optimization for omni-channel retailers. Specifically, we propose a randomized pricing strategy for omni-channel retailers by considering manufacturer’s wholesale price, customers’ discrepant perception between two channels, and customers’ strategic-waiting behavior. Under this strategy, while the retailer offers a fixed price in the offline channel, it may randomly provide a discount according to a preset probability in the online channel to discriminate between customers and gain more profit. This study explores how the manufacturer’s wholesale price and strategic customer behavior affect the randomized pricing strategy and profits for both omni-channel retailer and manufacturer. We show that if a randomized pricing strategy exists, it can benefit both the retailer and manufacturer. Finally, hiding the promotion probability is not always beneficial to the retailer. However, the retailer can benefit from price differentiation. Therefore, this study also provides guidelines to develop effective pricing strategies for omni-channel retailing.