Assessing the Value of Information Sharing in a Promotional Retail Environment
AbstractWe focus on a logistics system where inventory is held at three levels: the customers, the retail store, and the warehouse. Retail customer segments are heterogeneous and differ in their reservation prices for product as well as their holding costs. They purchase product from a retail store managed by a retailer. The retailer chooses a retail pricing scheme to maximize his expected profit given a model of customer temporal response to retail pricing. This retailer is supplied product from a warehouse managed by a manufacturer. The manufacturer is responsible for maintaining inventory level at the warehouse and providing 100% service level for retailer orders. The manufacturer uses all available information to generate an inventory policy that maximizes expected profit subject to the service-level requirement. We evaluate the manufacturer's optimal expected profit under two possible schemes: (1) no information regarding the timing of retail promotion plans, and (2) full information regarding the timing of retail promotion plans. We show: (1) as the predictability of the sales impact of a promotion decreases, it may be optimal for the retailer to eliminate retail promotions; (2) increased stockpiling tendency of customers increases retailer profits and decreases manufacturer profits; and (3) retail-promotion information sharing can make retail promotions change from being less profitable than no promotions to being more profitable than no promotions for the manufacturer. We show the impact of fitting the model to a grocery store data set that provided data regarding retail sales (and associated prices) of canned tomato soup over two years. We also explore managerial insights suggested by the model.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by INFORMS in its journal Manufacturing & Service Operations Management.
Volume (Year): 2 (2000)
Issue (Month): 2 (February)
information sharing; retail promotions; customer heterogeneity; inventory models;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Li, Xiuhui & Wang, Qinan, 2007. "Coordination mechanisms of supply chain systems," European Journal of Operational Research, Elsevier, vol. 179(1), pages 1-16, May.
- Fleischmann, M. & Hall, J.M. & Pyke, D.F., 2003. "Smart Pricing: Linking Pricing Decisions with Operational Insights," ERIM Report Series Research in Management ERS-2004-001-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
- Fleischmann, M. & Hall, J.M. & Pyke, D.F., 2005. "A Dynamic Pricing Model for Coordinated Sales and Operations," ERIM Report Series Research in Management ERS-2005-074-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.