IDEAS home Printed from https://ideas.repec.org/a/inm/ormsom/v2y2000i2p128-143.html
   My bibliography  Save this article

Assessing the Value of Information Sharing in a Promotional Retail Environment

Author

Listed:
  • Ananth. V. Iyer

    () (Krannert School of Management, 1310 Krannert Building, Purdue University, West Lafayette, Indiana 47907)

  • Jianming Ye

    () (Department of Statistics and CIS, Baruch College, City University of New York, 17 Lexington Avenue, New York, New York 10010)

Abstract

We focus on a logistics system where inventory is held at three levels: the customers, the retail store, and the warehouse. Retail customer segments are heterogeneous and differ in their reservation prices for product as well as their holding costs. They purchase product from a retail store managed by a retailer. The retailer chooses a retail pricing scheme to maximize his expected profit given a model of customer temporal response to retail pricing. This retailer is supplied product from a warehouse managed by a manufacturer. The manufacturer is responsible for maintaining inventory level at the warehouse and providing 100% service level for retailer orders. The manufacturer uses all available information to generate an inventory policy that maximizes expected profit subject to the service-level requirement. We evaluate the manufacturer's optimal expected profit under two possible schemes: (1) no information regarding the timing of retail promotion plans, and (2) full information regarding the timing of retail promotion plans. We show: (1) as the predictability of the sales impact of a promotion decreases, it may be optimal for the retailer to eliminate retail promotions; (2) increased stockpiling tendency of customers increases retailer profits and decreases manufacturer profits; and (3) retail-promotion information sharing can make retail promotions change from being less profitable than no promotions to being more profitable than no promotions for the manufacturer. We show the impact of fitting the model to a grocery store data set that provided data regarding retail sales (and associated prices) of canned tomato soup over two years. We also explore managerial insights suggested by the model.

Suggested Citation

  • Ananth. V. Iyer & Jianming Ye, 2000. "Assessing the Value of Information Sharing in a Promotional Retail Environment," Manufacturing & Service Operations Management, INFORMS, vol. 2(2), pages 128-143, February.
  • Handle: RePEc:inm:ormsom:v:2:y:2000:i:2:p:128-143
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/msom.2.2.128.12350
    Download Restriction: no

    References listed on IDEAS

    as
    1. E. Zabel, 1970. "Monopoly and Uncertainty," Review of Economic Studies, Oxford University Press, vol. 37(2), pages 205-219.
    2. João L. Assunção & Robert J. Meyer, 1993. "The Rational Effect of Price Promotions on Sales and Consumption," Management Science, INFORMS, vol. 39(5), pages 517-535, May.
    3. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    4. Lazear, Edward P, 1986. "Retail Pricing and Clearance Sales," American Economic Review, American Economic Association, vol. 76(1), pages 14-32, March.
    5. Scott A. Neslin & Stephen G. Powell & Linda Schneider Stone, 1995. "The Effects of Retailer and Consumer Response on Optimal Manufacturer Advertising and Trade Promotion Strategies," Management Science, INFORMS, vol. 41(5), pages 749-766, May.
    6. Jeuland, Abel P & Narasimhan, Chakravarthi, 1985. "Dealing-Temporary Price Cuts-by Seller as a Buyer Discrimination Mechanism," The Journal of Business, University of Chicago Press, vol. 58(3), pages 295-308, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ketzenberg, Michael E. & Rosenzweig, Eve D. & Marucheck, Ann E. & Metters, Richard D., 2007. "A framework for the value of information in inventory replenishment," European Journal of Operational Research, Elsevier, vol. 182(3), pages 1230-1250, November.
    2. Kurata, Hisashi & Liu, John J., 2007. "Optimal promotion planning--depth and frequency--for a two-stage supply chain under Markov switching demand," European Journal of Operational Research, Elsevier, vol. 177(2), pages 1026-1043, March.
    3. 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 University Rotterdam.
    4. Ananth V. Iyer & Apurva Jain, 2003. "The Logistics Impact of a Mixture of Order-Streams in a Manufacturer-Retailer System," Management Science, INFORMS, vol. 49(7), pages 890-906, July.
    5. Li, Xiuhui & Wang, Qinan, 2007. "Coordination mechanisms of supply chain systems," European Journal of Operational Research, Elsevier, vol. 179(1), pages 1-16, May.
    6. 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 University Rotterdam.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormsom:v:2:y:2000:i:2:p:128-143. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc). General contact details of provider: http://edirc.repec.org/data/inforea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.