This dissertation develops and estimates a dynamic model of consumer choice behavior in markets for seasonal (short lifecycle) goods where products have a finite selling season, consumer valuations change over time and availability is limited. In these markets, retailers often use dynamic markdown policies in which an initial retail price is announced at the beginning of the season and the price is subsequently marked down as the season progresses. Strategic consumers face a tradeoff between purchasing early in the season when prices are higher but goods are available and purchasing later when prices are lower but the stock-out risk is higher. My structural model incorporates two features essential to modeling the demand for seasonal goods: change in consumer valuations over a finite season and limited availability. In this model, heterogeneous consumers have expectations about future prices and availability levels and strategically time their purchases. I estimate the model using aggregate sales and inventory data from a fashion goods retailer. The results indicate that ignoring the change in consumer valuations over the season or consumers' expectations about future availability can lead to biased demand estimates. I find that demand is very responsive to price changes in the earlier periods but that responsiveness decreases significantly throughout the season. I also find that strategic consumers delay their purchases to take advantage of markdowns and that these strategic delays hurt the retailer's revenues. Retailer revenues facing strategic consumers are 18% lower than they would have been facing myopic consumers. Limited availability on the other hand reduces the extent of strategic delays by motivating consumers to purchase earlier. I find that, the impact of strategic delays on retailer revenues would have been as high as 37% if there were no stock-out risk. By means of three counterfactual experiments, I show that the highest retailer profits are achieved by offering early and small markdowns. On the other hand, given current markdown percentages, the retailer can improve profits by delaying the markdowns or carrying less stock. Facing later markdowns, less price sensitive consumers accelerate their purchases and buy at a higher price. When the retailer limits the initial stock, however, increased stock-out risk in the later periods forces the customers to buy earlier at higher prices. As long as the reduction in availability is not great, the profit gain from earlier sales can overcome the loss due to the reduction in overall sales.

Last modified

• 09/10/2018

Creator

• Gonca Pinar Soysal

DOI

• https://doi.org/10.21985/N2GM9G

Subject

• Marketing

Keyword

• Strategic Behavior
• Fashion
• Retailing
• Seasonal Goods
• Dynamic Pricing
• Markdown Pricing

Date created

• 2008-05-09

Resource type

• Dissertation

Rights statement

• In Copyright