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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

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.

Suggested Citation

  • Taaffe, Kevin & Geunes, Joseph & Romeijn, H. Edwin, 2008. "Target market selection and marketing effort under uncertainty: The selective newsvendor," European Journal of Operational Research, Elsevier, vol. 189(3), pages 987-1003, September.
  • Handle: RePEc:eee:ejores:v:189:y:2008:i:3:p:987-1003
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    References listed on IDEAS

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    1. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
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    8. Demetrios Vakratsas & Fred M. Feinberg & Frank M. Bass & Gurumurthy Kalyanaram, 2004. "The Shape of Advertising Response Functions Revisited: A Model of Dynamic Probabilistic Thresholds," Marketing Science, INFORMS, vol. 23(1), pages 109-119, April.
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    Citations

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    Cited by:

    1. repec:eee:proeco:v:196:y:2018:i:c:p:188-197 is not listed on IDEAS
    2. 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.
    3. 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.
    4. Li, Shanling & Wang, Letian, 2010. "Outsourcing and capacity planning in an uncertain global environment," European Journal of Operational Research, Elsevier, vol. 207(1), pages 131-141, November.
    5. Long Gao & Susan H. Xu & Michael O. Ball, 2012. "Managing an Available-to-Promise Assembly System with Dynamic Short-Term Pseudo-Order Forecast," Management Science, INFORMS, vol. 58(4), pages 770-790, April.
    6. Taaffe, Kevin & Geunes, Joseph & Edwin Romeijn, H., 2010. "Supply capacity acquisition and allocation with uncertain customer demands," European Journal of Operational Research, Elsevier, vol. 204(2), pages 263-273, July.
    7. Martin Steinrücke & Wolfgang Albrecht, 2016. "A flow-to-equity approach to coordinate supply chain network planning and financial planning with annual cash outflows to an institutional investor," Business Research, Springer;German Academic Association for Business Research, vol. 9(2), pages 297-333, August.
    8. 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.
    9. 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.
    10. Merzifonluoglu, Yasemin, 2017. "Integrated demand and procurement portfolio management with spot market volatility and option contracts," European Journal of Operational Research, Elsevier, vol. 258(1), pages 181-192.

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