Time-sensitive cancellation refund in advance booking: Effect of online-to-offline marketing policy

Abstract

Due to heightened competition, current selling approaches are rapidly advancing as firms aim to enhance customer satisfaction to increase their market share and extend their customers’ zone. As an efficient advertising method, the online-to-offline (O2O) marketing strategy is extensively used by most of the competing vendors who tend to sell their commodities via advertisement in both virtual and traditional stores. By doing it this way, they can reach both online and offline-oriented customers, who prefer to buy the required commodities from online stores and real shopping centres respectively. In this research, we study the behaviour of two complementary firms in the airline and hotel industry using an advance booking policy. Here, it is supposed that cancellation is allowed and customers can enjoy a partial refund paid by the firms selling their products via both online and offline stores. The principal goal of this study is to investigate the behaviour of the partners of firms with/without an O2O strategy where the firms use partial refund for cancelled orders under time-sensitive cancellation rates. The optimal selling prices of commodities in advance and in a spot selling period are the decision variables, whose values are examined by numerical examples and are assessed using sensitivity analyses.

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