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Optimal Sales Discount Decision Model with Fixed Ordered Quantities

Author

Listed:
  • Zheng Shi

    (School of Economics and Management, Dalian Nationalities University, Dalian116600, China)

  • Zheng Wen

    (School of Economic and Trading, North-eastern University in Qinhuangdao, Qinhuangdao066004, China)

Abstract

The purpose of this paper is to study sales pricing and discount strategy for sellers. Here, the suppliers require fixed order quantities to the sellers. Therefore, to incorporate the concept of sellers’ maximum profit and sales discount into the model, the author classifies the multi-category goods into backlog, flat and profitable one. Then the model to determine the optimal sales price strategy for a sales discount decision system with fixed order quantities is analyzed. As most of the non-linear model can be linearization, a mathematical model for sales discount decision system is developed when demand rate is a liner function of the sales price. By analyzing the total profit function, the authors developed some useful results to characterize the optimal solution and provided a method to find the sales discount for holdovers. By developing a solution algorithm, the optimal retail price and sales discount for holdovers are provided. Case scenarios are presented to validate the proposed model. Through case scenarios analyses, it is observed that optimal sales discount can help the sellers earn maximum profit with constraints of fixed order quantities. Most of the research articles available in the literature assumed that the sellers are always in optimal situation. In fact, sellers’ decisions rely on suppliers’ decisions in most cases. In this paper, determination of sales discounts can be seen as sellers compromise to suppliers by seeking the optimal strategy with downstream customers. In view of this fact, a mathematical model is developed considering sales price dependent linear demand and sellers’ profit. Very few researchers have investigated optimal sales discount decision system with fixed order quantities; although it is a real situation the sellers should be faced.

Suggested Citation

  • Zheng Shi & Zheng Wen, 2014. "Optimal Sales Discount Decision Model with Fixed Ordered Quantities," Journal of Systems Science and Information, De Gruyter, vol. 2(4), pages 345-357, August.
    • Handle: RePEc:bpj:jossai:v:2:y:2014:i:4:p:345-357:n:5
    DOI: 10.1515/JSSI-2014-0345
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    References listed on IDEAS

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