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Clearance Pricing and Inventory Policies for Retail Chains

  • Stephen A. Smith

    (Leavey School of Business, Santa Clara University, Santa Clara, California 95053)

  • Dale D. Achabal

    (Leavey School of Business, Santa Clara University, Santa Clara, California 95053)

Registered author(s):

    Clearance pricing and end of season inventory management are challenging and important problems in retailing. Sales rates depend upon price, seasonal effects, and the remaining assortment of items available to customers. There is little time to react to observed sales, and pricing errors result in either loss of potential revenue or excess inventory to be liquidated. This paper develops optimal clearance prices and inventory management policies that take into account the impact of reduced assortment and seasonal changes on sales rates. Versions of these policies have been tested and implemented at three major retail chains and these applications are summarized and discussed.

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    File URL: http://dx.doi.org/10.1287/mnsc.44.3.285
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    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 44 (1998)
    Issue (Month): 3 (March)
    Pages: 285-300

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    Handle: RePEc:inm:ormnsc:v:44:y:1998:i:3:p:285-300
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    1. Kunreuther, Howard & Richard, Jean Francois, 1971. "Optimal Pricing and Inventory Decisions for Non-Seasonal Items," Econometrica, Econometric Society, vol. 39(1), pages 173-75, January.
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    7. Shlomo Kalish, 1985. "A New Product Adoption Model with Price, Advertising, and Uncertainty," Management Science, INFORMS, vol. 31(12), pages 1569-1585, December.
    8. Pashigian, B Peter, 1988. "Demand Uncertainty and Sales: A Study of Fashion and Markdown Pricin g," American Economic Review, American Economic Association, vol. 78(5), pages 936-53, December.
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    13. David Besanko & Wayne L. Winston, 1990. "Optimal Price Skimming by a Monopolist Facing Rational Consumers," Management Science, INFORMS, vol. 36(5), pages 555-567, May.
    14. Edward P. Lazear, 1984. "Retail Pricing and Clearance Sales," NBER Working Papers 1446, National Bureau of Economic Research, Inc.
    15. Howard Kunreuther & Linus Schrage, 1973. "Joint Pricing and Inventory Decisions for Constant Priced Items," Management Science, INFORMS, vol. 19(7), pages 732-738, March.
    16. Nancy L. Stokey, 1979. "Intertemporal Price Discrimination," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 355-371.
    17. Gabriel R. Bitran & Susana V. Mondschein, 1997. "Periodic Pricing of Seasonal Products in Retailing," Management Science, INFORMS, vol. 43(1), pages 64-79, January.
    18. Chakravarthi Narasimhan, 1984. "A Price Discrimination Theory of Coupons," Marketing Science, INFORMS, vol. 3(2), pages 128-147.
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