11.01.2022

Abating Double-Blind Effect in Opaque Selling

黎擎 | 鄧兆生 | 徐和

Opaque selling is a marketing strategy adopted by industries such as retailing and travel under which firms sell end-of-the-season inventory of different products as a single opaque good and customers find out the specific products they actually get only after they have made the purchase. Opaque selling entails a “double-blind” process: customers do not know the inventory level of each product, and the seller does not know their product preferences.  This double-blind process can result in customer dissatisfaction when customers do not receive the products they were hoping for, and the seller is unable to allocate the right product to the right customer. To reduce customer dissatisfaction arising from the double-blind process, should the seller: (1) reveal its inventory information to customers, (2) solicit each customer's product preference, or (3) charge customers a higher price for removing product uncertainty?

To examine these issues, a model in which a firm sells two products as a single opaque good is analyzed.  It is shown that revealing inventory information or soliciting customer preferences results in higher customer surplus, but lower revenue for the firm.  Therefore, there is no short-term economic gain for the firm from revealing its inventory information to and/or soliciting product preferences from customers. The real incentive for the firm to do so is that it would increase customer trust and satisfaction, which would improve customer loyalty and generate positive customer reviews and hence benefit the firm in a long term. 

The case when the firm sells specific goods and opaque good at the same time is then considered. It is shown that relative to the case of selling only the opaque good, the firm's revenue is strictly higher and customer surplus may be higher or lower. Specifically, when the additional cost is product dependent, the firm gains the most when the inventories of different products are relatively balanced and their valuations are strongly skewed. When the additional cost is product independent, however, the firm gains the most when the inventories of different products are relatively balanced but their valuations are not too strongly skewed. In additions, in spite of higher prices, there are circumstances where customers can benefit from the option of paying higher price to remove product uncertainty. In other words, the strategy can be a win-win one for both the firm and customers.

This study is an attempt to understand how inventory and information affect customers’ purchasing decisions, the firm’s product allocation policy, and the firm’s pricing strategies. In recent years, opaque selling has also become a common practice in online video games.  In online video games, there are many new research questions related to opaque selling that are important to players, providers and regulators. This study, which is motivated by practices in retailing and travel industries, may help shed light on these new questions.

黎擎

Academic Director, MSc in Global Operations, Professor
Information Systems, Business Statistics & Operations Management