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Target market selection and marketing effort under uncertainty: The selective newsvendor

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  • Taaffe, Kevin
  • Geunes, Joseph
  • Romeijn, H. Edwin
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    Abstract

    We consider a firm that markets, procures, and delivers a good with a single selling season in a number of different markets. The price for the good is market-dependent, and each market has an associated demand distribution, with parameters that depend on the amount of marketing effort applied. Given long procurement lead-times, the firm must decide which markets it will serve prior to procuring the good. We develop a profit maximizing model to address the firm's integrated market selection, marketing effort, and procurement decisions. The model implicitly accounts for inventory pooling across markets, which reduces safety stock costs but increases model complexity. The resulting model is a nonlinear integer optimization problem, for which we develop specialized solution methods. For the case in which budget constraints exist, we provide a novel solution approach that uses a tailored branch-and-bound algorithm. Our approach solves a broad range of 3000 test instances in an average of less than 2 seconds, significantly outperforming a leading commercial global optimization solver.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 189 (2008)
    Issue (Month): 3 (September)
    Pages: 987-1003

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    Handle: RePEc:eee:ejores:v:189:y:2008:i:3:p:987-1003

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    Web page: http://www.elsevier.com/locate/eor

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    Cited by:
    1. Strinka, Zohar M.A. & Romeijn, H. Edwin & Wu, Jingchen, 2013. "Exact and heuristic methods for a class of selective newsvendor problems with normally distributed demands," Omega, Elsevier, vol. 41(2), pages 250-258.
    2. Shu, Jia & Li, Zhengyi & Shen, Houcai & Wu, Ting & Zhong, Weijun, 2012. "A logistics network design model with vendor managed inventory," International Journal of Production Economics, Elsevier, vol. 135(2), pages 754-761.
    3. Lin, Jun & Ng, Tsan Sheng, 2011. "Robust multi-market newsvendor models with interval demand data," European Journal of Operational Research, Elsevier, vol. 212(2), pages 361-373, July.
    4. Tang, Christopher S., 2010. "A review of marketing-operations interface models: From co-existence to coordination and collaboration," International Journal of Production Economics, Elsevier, vol. 125(1), pages 22-40, May.

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