The effect of advertising on the distribution-free newsboy problem
Advertising is very important for the newsboy problem because the shelf-life of the newsboy product is short and advertising may increase sales to avoid overstocking. In this paper, models to study the effect of advertising are developed for the distribution-free newsboy problem where only the mean and variance of the demand are known. As in Khouja and Robbins (2003), it is assumed that the mean demand is an increasing and concave function of advertising expenditure. Three cases are considered: (1) demand has constant variance, (2) demand has constant coefficient of variation, and (3) demand has an increasing coefficient of variation. This paper provides closed-form solutions or steps to solve the problem. Numerical results of the model are also compared with those from other papers. The effects of model parameters on optimal expenditure on advertising, optimal order quantity, and the lower bound on expected profit are derived or discussed.
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- Alfares, Hesham K. & Elmorra, Hassan H., 2005. "The distribution-free newsboy problem: Extensions to the shortage penalty case," International Journal of Production Economics, Elsevier, vol. 93(1), pages 465-477, January.
- Mostard, Julien & de Koster, Rene & Teunter, Ruud, 2005. "The distribution-free newsboy problem with resalable returns," International Journal of Production Economics, Elsevier, vol. 97(3), pages 329-342, September.
- Khouja, Moutaz & Robbins, Stephanie S., 2003. "Linking advertising and quantity decisions in the single-period inventory model," International Journal of Production Economics, Elsevier, vol. 86(2), pages 93-105, November.
- Özler, Aysun & Tan, BarIs & Karaesmen, Fikri, 2009. "Multi-product newsvendor problem with value-at-risk considerations," International Journal of Production Economics, Elsevier, vol. 117(2), pages 244-255, February.
- Vijay Mahajan & Eitan Muller, 1986. "Reply—Reflections on Advertising Pulsing Policies for Generating Awareness for New Products," Marketing Science, INFORMS, vol. 5(2), pages 110-111.
- Wang, Charles X., 2010. "The loss-averse newsvendor game," International Journal of Production Economics, Elsevier, vol. 124(2), pages 448-452, April.
- Khouja, Moutaz, 1999. "The single-period (news-vendor) problem: literature review and suggestions for future research," Omega, Elsevier, vol. 27(5), pages 537-553, October.
- Vijay Mahajan & Eitan Muller, 1986. "Advertising Pulsing Policies for Generating Awareness for New Products," Marketing Science, INFORMS, vol. 5(2), pages 89-106.
- 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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