The Supply Chain Impact of Smart Customers in a Promotional Environment
AbstractIncreasing product variety through the use of alternate package sizes is a commonly observed mechanism in the grocery industry. Under such a scheme, however, the response to pricing decisions for each of the different package sizes is affected by how customers make demand choices. We build a demand model in which customers react smart to retail promotions through stockpiling and package size switching. The demand model combines a customer choice model with a model in which customers differ in their stockpiling and reservation price levels. We utilize data from the German grocery industry for an empirical fitting of the model. We then develop a store-level inventory model for each SKU and optimize price promotions to maximize expected profit. We show the benefit of capturing the smart customer response to price promotions by demonstrating its impact on the reduced inventory costs. We use the model to generate a number of managerial implications of the model for the German grocery environment.
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): 4 (2002)
Issue (Month): 3 (November)
Retail Promotions; Price Transparency; Supply Chain Management; Grocery Industry;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- 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 Uni.
- Luo, Chunlin & Leng, Mingming & Huang, Jian & Liang, Liping, 2014. "Supply chain analysis under a price-discount incentive scheme for electric vehicles," European Journal of Operational Research, Elsevier, vol. 235(1), pages 329-333.
- 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 Uni.
- Stadtler, Hartmut, 2005. "Supply chain management and advanced planning--basics, overview and challenges," European Journal of Operational Research, Elsevier, vol. 163(3), pages 575-588, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).
If references are entirely missing, you can add them using this form.