The Supply Chain Impact of Smart Customers in a Promotional Environment
Increasing product variety through the use of alternate package sizes is a commonly observed mechanism in the grocery industry. Under such a scheme, however, the response to pricing decisions for each of the different package sizes is affected by how customers make demand choices. We build a demand model in which customers react smart to retail promotions through stockpiling and package size switching. The demand model combines a customer choice model with a model in which customers differ in their stockpiling and reservation price levels. We utilize data from the German grocery industry for an empirical fitting of the model. We then develop a store-level inventory model for each SKU and optimize price promotions to maximize expected profit. We show the benefit of capturing the smart customer response to price promotions by demonstrating its impact on the reduced inventory costs. We use the model to generate a number of managerial implications of the model for the German grocery environment.
Volume (Year): 4 (2002)
Issue (Month): 3 (November)
|Contact details of provider:|| Postal: |
Web page: http://www.informs.org/Email:
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:inm:ormsom:v:4:y:2002:i:3:p:228-240. 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)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.