George Cai, assistant professor of management at Kansas State University, is working on research involving supply chain management for the travel industry when using online retail outlets such as Priceline.com.
The project has been awarded a $225,000 grant from the National Science Foundation. It is part of a larger grant of $450,000 that is being shared between K-State and the University of Michigan, where Cai's research partner, Xiuli Chao is a professor of industrial and operations engineering.
The grant is special for K-State's College of Business Administration because the college rarely has research projects funded by the National Science Foundation.
"We are excited to learn of Dr. Cai's research grant award through the National Science Foundation," said Yar Ebadi, dean of the College of Business Administration. "This grant will serve to help advance the college's initiative in supply chain management and increase our reputation among business schools. It is indeed unique among business scholars to receive an NSF grant. Dr. Chai and Dr. Chao are to be commended for this outstanding achievement."
The project is "Collaborative Research on Studies of Multichannel Opaque Service Enterprises." Cai and Chao are focusing on the travel industry and its distribution channels, including opaque outlets, such as Hotwire.com and Priceline.com.
Opaque means that the consumer does not have the full information about a product. For example, when using Priceline.com the consumer can bid on a four-star hotel room, but they do not know the name of the hotel or the location -- that is what makes such outlets opaque. Many consumers use opaque channels because they consistently offer lower prices for the trade-off of not knowing exactly what they are paying for.
"Because of the Internet, everybody can purchase an airline ticket or make a hotel reservation at anytime, through many channels," Cai said. "You can compare all of them very quickly and immediately from the Internet, and it makes the competition between retailers much more intense."
Cai's research is focused on building mathematical models to help suppliers and retailers determine optimal pricing, channel distribution and revenue management. Suppliers, such as American Airlines, need to decide how many tickets to allocate to channels like Priceline.com or Expedia.com, along with the tickets sold on their own Web sites. Hotels face the same types of decisions, such as how many rooms to allocate to various channels.
"It has become very difficult for suppliers and retailers to figure out what the optimal strategy is to attract consumers and, at the same time, generate the most revenue using a mix of channels."
Cai's research is not only relevant to companies but to consumers as well, he said. Almost everyone uses traveling services, and many of the suppliers and retailers are utilizing opaque channels. Online travel service alone earned more than $100 billion in 2008, and about $8 billion was through opaque purchases, according to Cai.
"We hope our research will help both companies and consumers figure out how to utilize and maximize revenue using opaque services," he said.