With the high-speed development of technology and increasingly fierce competition in the market, many retailers in industries such as computers, smart phones and fashion dress begin to widely adopt the advance selling mode for product selling. Unlike traditional single-stage spot sales mode, we consider a seller who can sell her product over two periods, advance and spot. The seller has private information about the product quality, which is unknown to customers in advance and publicly revealed in spot. The question we consider is which strategy the seller will choose to signal quality in advance and how she can convey a credible signal of product quality. The method that this paper used is signaling game model which is build between retailer and consumer under the influence of product diffusion effect and negative review effect. We find that the price and the e-commerce platform in the advance period are effective tools of signaling product quality. By exploring the problem above, we get some conclusions below: market equilibriums are decided by credibility of the e-commerce platform selected by the high quality product seller. The possibility of equilibrium implementation is affected by the quantity of consumer in pre-selling period, negative review effect coefficient, and the quality of low quality product which can be adjusted market to promote separation equilibrium and avoid confusion equilibrium.
Advance selling becomes popular in recent years, more and more consumers who are attracted by convenience and preferential price have trained the habit of advance purchasing. Many high-tech products, electronic products and fashion and other perishable products have used advance selling and normal selling in two periods, such as Amazon and Barnes & noble presell unlisted electronic books, software, movies, DVDS, music albums, video games and so on. Shugan & Xie [
Consumers’ purchasing behavior is becoming more and more tactical in the face of dynamic pricing [
As the rapid development of social media channels, the information communication between consumers is increasingly fluid. Consumers will display and comment on the new product, release and share their consumption experience through the diversified platform (for example, facebook, twitter, etc.). Information flowing between consumer groups will affect the potential consumer’s perception and attitude of a product or service, which can result in the change of consumers’ purchase preference and decision (i.e., consumer interaction). For example, if some new products are found to have a great booking quantity when consumers browse the amazon [
In fact, the early academic studies on new products’ advance selling is mainly focus on how to use the advance demand information to improve the forecast and inventory planning aspects of the enterprise.
A lot of research mainly discussed the problem of advance selling and demand forecasting, such as Li, C., Zhang studied how retailers use the new products’ selling information to improve demand forecasting on the premise of rapid response [
Along with market competition intensifying, the influence of consumer behavior is becoming more and more important. Therefore, recent studies on advance selling strategies began to consider the effect of behavioral factors. Moe discovered that advance demand information will be more valuable when there is strategic consumer behavior. The reason is that these strategic consumers will buy products selectively until clearance sale appearing, which will bring adverse effect to enterprise’s profit [
Product diffusion refers to that the products have been adopted by more and more consumers after listed with the passage of time. Consumers’ shopping psychology is mainly divided into two categories: convergence and the pursuit of personality. Based on this, two kinds of different shopping behavior have appeared. In turn, consumer behavior will build status signal, shape personal image, and reveal his personality. Other consumers in the market can easily get accurate, detailed information about the product or service. Information flows between consumer groups will affect the potential consumer’s perception and attitude to a product or service, which can result in the change of its product purchase preference and purchase decision.
Signaling game is a kind of simple, important gamemodel in incomplete information dynamic game model games. There are a lot of applications in the field of economic management. There are two participants in signaling games: the sender of signal is participant 1, the receiver of signal is participant 2. The participant 1 knows her private type
1) The type of participant 1 is
2) Participant 1 will choose signal
3) Participant 2 will generate an inference for the type of participant 1, named posteriori probability
In signaling game, the strategy
There are two kinds of equilibrium in the application of signaling game: separating equilibrium and pooling equilibrium. Separating equilibrium means different signal senders send different kinds of signals. Pooling equilibrium means different signal senders send the same kind of signal.
This paper considers that a single retailer use two period sales model which combined pre-sale period and normal sales period in oligopoly market to sell products whose updating speed and sale cycle is rapid and short. Retailers will deliver pre-sale Consumers are uncertainty about the quality of the product because of the lack of consumer experience in pre-sale period. However, consumers are certain about the quality of the products because of transparent information in the normal sales period. Therefore, retailers need to disclose some information about quality to make consumers decide their action in pre-sale period. In reality, the most direct signal reflecting quality of the product is price. However, there are more and more e-commerce platforms whose credibility is different. So the quality of product is not only reflected by its price, but also by e-commerce platform selected by its retailer. So this paper assumes that the retailer conveys the quality information of the product by delivering signal whose content is price and the credibility of e-commerce platform selected by retailer. The consumers entering the market in pre-sale period will decide to pre-pur- chase or wait according to the signal they received to maximize their utility. At the same time, the retailer can predict their signal’s influence on consumers’ buying behavior, so retailer need to make decisions on signaling to maximize its utility. Finally, we can get the conditions of separating equilibrium and pooling equilibrium.
How retailers choose the information they want to send to consumers to influence their own utility (profit)? In this paper, the model takes the product diffusion that is the sales volume during the pre-sale period will influence the sales volume on the normal sales period positively into account. The diffusion effect of high quality product is more obvious than low quality products. Therefore, in order to simplify the research, this paper only considered the product diffusion effect of high quality products. The reliability of the sales volume displayed on the e-commerce platform is decided by the credibility of the e-commerce platform. Hence, the degree of the product diffusion is decided by pre-sale volume and the credibility of the e-commerce platform collectively.
This paper not only considered product diffusion effect, also considered the influence of negative reviews. In reality, consumers can clearly receive negative review information at e-commerce platforms who have high credibility because of its perfect evaluation system, so the influence of negative review is large. In the same way, the influence of negative review is small at e-commerce platforms who have low credibility. Therefore, in order to simplify the research, this paper assumes that negative review effect will not be generated when products is pre-sale in low credit platform. The degree of influence is decided by the difference between the price and the actual quality.
Assumption1) Retailer and consumer are the two participants in the signal game of the e-commerce advance selling. Retailer is the sender of signal and consumer is the receiver of signal. Additionally, the type of retailer is private information.
2) There are many types of retailers’ classification standards, this paper considers that the retailers need to convey information to signal quality of the products. Thus, retailers can be divided into the high quality retailer and the low quality retailer two types, which are said by
3) The quality of high quality product is 1; The quality of low quality product is t.
4) Consumers’ evaluation to the product obey uniform distribution between 0 and 1, namely,
5) Retailers choose a signal from
6) Consumers will choose an action from
7) The high quality retailers only signal
8) The high quality product diffusion effect is influenced by the credibility of the e-commerce platform and quantity of the pre-sale quantity collectively.
9) Consumers won’t give negative interview if they receive real signal and choose to purchase in advance; Consumers will give negative interview if they receive false signal and choose to purchase in advance. The negative influence caused by negative reviews is positively proportional with the pre-sale price, and inversely proportional with the quality of the product. Namely,
10) Because the customers in the market are rational, if and only if the utility of buying products is greater than or equal to zero, consumers will buy the product. Hence, the demand quantity of the products in pre-sale period is
11) The retailers and consumers all pursue the maximum expected revenue.
Above all, retailers and consumers all pursue the maximum expected revenue. Suggests that
Separating equilibrium refers to that different types of retailers choose different signals to send. In this paper, because the high quality retailers just send high quality signal, as long as low quality product retailers send low quality signal, can separating equilibrium realize. The high quality retailers send high quality signal
1) Consumer’s strategy behavior
The retailers may send signal that is inconsistent with their own quality, so that consumer’s prior probability of high quality retailer is as following:
Consumer’s strategy is selecting action from
a) When
So that,
b) When
So that,
Hence, if retailer send real signal, consumer’s best strategy to select action according to different signals is as following:
2) Retailer’s strategy behavior
Retailer’s strategy is to select from
a) If
b) If
In the following,
If
pre-sale pricing,
If
maximize
If
so that, if
To sum up, there are several equilibrium strategies as following:
1) When
equilibrium strategy is
2) When
or
strategy is
Therefore, the second situation reached a separating equilibrium, we can get the following corollary:
Corollary 1: If the profit of the low quality retailers in normal sales period without the influence of pre-sale strategy
At the same way, if the profit of the low quality retailers in normal sales period without the influence of pre-sale strategy
If
If
If
If
Corollary 2: If the profit of low quality product retailer in normal sales period without the influence of pre-sale strategy
At the same way, if the profit of low quality product retailer in normal sales period without the influence of pre-sale strategy
Because
Hence, this function is greater with
Hence, this function is greater with
If
tion of separating equilibrium;
If
of separating equilibrium.
Corollary 3: The bigger the negative review effect coefficient , the more easy it is to achieve the separating equilibrium. For the low quality retailer, the cost of imitating the high quality retailer is larger with
this function is greater with
Then,
so that
Pooling equilibrium refers to that the high quality retailer and the low quality retailer choose the same signal to send. However, there is a certain price for the low quality retailer to imitate the high quality retailer. Due to two types of retailers sending the same signal, the signal can’t differentiate the retailers. Consumers can’t modify prior probability because they can’t get new information from the signal transmission. This means that the low quality retailer can cheat consumers by imitating the high quality retailer.
1) Consumer’s strategy behavior
The retailers may send signal that is inconsistent with their own quality, so that consumer’s prior probability of high quality retailer is as following:
a) When
So that, if
b) When
So that,
Hence, if retailer may send false signal, consumer’s best strategy to select action according to different signals is as following:
When
When
2) Retailer’s strategy behavior
a) In the situation of
If
If
This situation is the same with separating equilibrium, so that, if
b) In the situation of
If
If
If
If
maximize
Then,
So that,
To sum up, there are several equilibrium strategies as following:
1) If
When
equilibrium strategy is
2) If
When
or
equilibrium strategy is
3) If
Therefore, pooling equilibrium is only reached in the first case. In the first case, the low quality retailer imitates the high quality retailer, and consumers choose to buy in pre-sale period. In this case, the signaling mechanism is a failure, consumers cannot judge the type of retailers from signals send by retailers, so that consumers will be deceived.
Corollary 1: The possibility of pooling equilibrium is low when consumers have a low prior probability for high quality product which can result in that consumer will choose to wait when they receive a high quality signal. Hence, the low quality retailer tends to send real signal.
The second, the third and the forth corollary is the same with the separating equilibrium.
From above analysis, the game may achieve separating equilibrium or pooling equilibrium. When separating equilibrium appears, retailers will send real signal according to its type, consumers can distinguish the low quality retailer and the high quality retailer, so that they can choose retailer according to their optimal utility. In this situation, it’s not economical for the low quality retailer to imitate the low quality retailer sending
From above, if we want to reach separating equilibrium and avoid pooling equilibrium, we can take action from the following aspects:
1) When the profit of the low quality retailer in normal sales period without the influence of pre-sale strategy is large, the manufacturers of high quality products should strengthen confidential work of product informationin case of being copied by the manufacturers of low quality products. When the profit of low quality product retailer in normal sales period without the influence of pre-sale strategy is small, the government should give some supporting policies to the enterprises of low quality products to encourage the enterprises of low quality products to invest more in research and improving quality.
2) When the number of consumers who enter the market in pre-sale period is small, the e-commerce platform should strengthen the advertising for advance selling to attract more consumers’ attention. However, the e-commerce platform should limit for product pre-sale ads when the number of consumers who enter the market in pre-sale period is more than a certain degree.
3) With the popularity of Internet shopping mode, there are more and more e-commerce platform in the market who will all build the consumer evaluation system. Some of the e-commerce platform have clear consumer evaluation system, some other have fuzzy consumer evaluation system platform. The more clear the consumer evaluation system, the larger the loss in the normal sale period results from negative interviews. Hence, in order to avoid the pooling equilibrium, the clear and perfect consumer evaluation system should be encouraged.
In the process of setting up model, there is a certain limitation that influences the effectiveness of the interpretation of reality. For example, we assume that the credibility of the e-commerce platform selected by the low quality retailer when he send real signal is zero to reduce the observed variables.
Therefore, in future research, we can consider that the e-commerce platform selected by retailer is positively correlated with the actual quality both for high quality retailer and low quality retailer, then we can have two observed variables, they are the credibility of the e-commerce platform selected by low quality retailer and high quality retailer respectively. In addition, on the basis of this paper, we can consider the situation that there are two retailers who have competition in the market by the same method; we can also make a comparison between monopoly market which is researched in this paper and competitive market.
Liu, X.X. (2017) The Signaling Study of Advance Selling Con- sidering the Product Diffusion and Online Reviews Effect. Journal of Service Science and Management, 10, 72-86. https://doi.org/10.4236/jssm.2017.101006
The following important notations will be used in the formulations:
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