Abstract
In this paper, we examine how a merchant should choose between discount promotion (offering a discount through an online third-party promotion platform) and coupon promotion (issuing on-package coupons directly to consumers). We develop a two-period model in which the merchant optimizes the promotion decision in the first period and does not promote in the second period. We identify two consumer segments: informed consumers who are aware of the merchant’s offering at the beginning of the first period and know the true quality of the product, and uninformed consumers who are not aware of the merchant’s offering at the beginning of the first period and underestimate the product quality. Moreover, the merchant has access only to informed consumers when adopting coupon promotion or when choosing not to promote, while the merchant can access both informed consumers and uninformed consumers when offering discount promotion. In this setting, we find that the merchant should offer discount promotion when the quality estimation of uninformed consumers is large and/or when the proportion of informed consumers is small; otherwise, the merchant should adopt coupon promotion when the effect of coupons in the first period is large and choose not to promote when the effect of coupons in the first period is small.
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Acknowledgments
We are grateful to the anonymous referees for their insightful and constructive comments and suggestions, which have helped us tremendously improve this paper. Thanks to the editor of this journal for the positive feedback. We also thank Professor Zhe Zhang from the University of Texas at Dallas for his comment. This research was supported by the National Natural Science Foundation of China under Grant No. 71771184 and partially supported by the Key Project of Shaanxi International Science and Technology Cooperation through Grant No. 2018KWZ-04. Qiying Hu also acknowledges financial support from the National Science Foundation of China(NSFC) under Grant No. 71671046.
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Peng Wang is a PhD student at Xidian University, Xi’an, Shaanxi. He got his bachelor’s degree in management from Xidian University. He was a visiting scholar in The University of Texas at Dallas, USA. His general research interests are in e-commerce, economics of information systems, platform economy, and online promotion. His papers have been published in academic journals and conferences, including Journal of Systems Science and Systems Engineering and INFORMS Annual Meeting.
Rong Du is the Huashan Scholar-Chair Professor of Management Science and Engineering at the School of Economics and Management, Xidian University, China. She got her bachelor’s degree in information control engineering and master’s degree in technological economics from Xi’an Jiaotong University, and a PhD degree in applied mathematics from Xidian University, China. She did her postdoctoral research in the Department of Management Information Systems at the University College Dublin, Ireland. She was a visiting professor in Georgia State University, USA. Her research interests include knowledge management, information systems, and E-commerce. She has published papers in journals such as European Journal of Operational Research, Expert Systems with Applications, Journal of Strategic Information Systems, International Journal of Information Technology & Decision Making, Electronic Commerce Research, etc. Dr. Du is a scholar of the New Century’s Excellent Talent Supporting Program selected by the Ministry of Education in China.
Qiying Hu is a professor with the Department of Management Science, School of Management, Fudan University. He received his B.S. degree in mathematics from Hangzhou University, China, M.S. in applied mathematics from Xidian University, China, and PhD in systems engineering from Konan University, Japan. His research interests include supply chain management, business model, and service management. He has been the author or coauthor over 150 research papers published in journals such as Production and Operations Management, Naval Research & Logistics, European Journal of Operations Research, and International Journal of Production Economics; and the author or coauthor over 15 books.
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Wang, P., Du, R. & Hu, Q. How to Promote Sales: Discount Promotion or Coupon Promotion?. J. Syst. Sci. Syst. Eng. 29, 381–399 (2020). https://doi.org/10.1007/s11518-020-5457-1
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DOI: https://doi.org/10.1007/s11518-020-5457-1