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Dynamic pricing and promotion expenditures in an EOQ model of perishable products

Author

Listed:
  • Tal Avinadav

    (Bar-Ilan University)

  • Tatyana Chernonog

    (Bar-Ilan University)

  • Yael Lahav

    (Bar-Ilan University)

  • Uriel Spiegel

    (Bar-Ilan University
    University of Pennsylvania)

Abstract

This study considers dynamic decisions of a retailer who seeks to determine the selling price and promotion expenditures associated with a perishable product, as well as to set the order quantity and the inter-replenishment time (cycle length). We propose an EOQ model in which the retailer faces a general demand function that is separable into multiplicative components of selling price, products’ age and promotion expenditure. We find analytical expressions for the optimal price and promotion trajectories; and we show that the former increases and the latter decreases in the products’ age, and that both are independent of the cycle length. Moreover, we show that the selling price is independent of the promotion expenditure, but not vice versa. It is also proved that under these optimal trajectories, the profit rate is strictly pseudo-concave in the cycle length. A comparison between dynamic and stationary strategies is given.

Suggested Citation

  • Tal Avinadav & Tatyana Chernonog & Yael Lahav & Uriel Spiegel, 2017. "Dynamic pricing and promotion expenditures in an EOQ model of perishable products," Annals of Operations Research, Springer, vol. 248(1), pages 75-91, January.
    • Handle: RePEc:spr:annopr:v:248:y:2017:i:1:d:10.1007_s10479-016-2216-2
    DOI: 10.1007/s10479-016-2216-2
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    2. Avinadav, Tal, 2020. "The effect of decision rights allocation on a supply chain of perishable products under a revenue-sharing contract," International Journal of Production Economics, Elsevier, vol. 225(C).
    3. Jiang Wu & Jinn-Tsair Teng & Konstantina Skouri, 2018. "Optimal inventory policies for deteriorating items with trapezoidal-type demand patterns and maximum lifetimes under upstream and downstream trade credits," Annals of Operations Research, Springer, vol. 264(1), pages 459-476, May.
    4. Hanukov, Gabi & Avinadav, Tal & Chernonog, Tatyana & Yechiali, Uri, 2019. "Performance improvement of a service system via stocking perishable preliminary services," European Journal of Operational Research, Elsevier, vol. 274(3), pages 1000-1011.
    5. Chernonog, Tatyana, 2020. "Inventory and marketing policy in a supply chain of a perishable product," International Journal of Production Economics, Elsevier, vol. 219(C), pages 259-274.
    6. Emre Berk & Ülkü Gürler & Saeed Poormoaied, 2020. "On the $$\varvec{(Q,r)}$$(Q,r) policy for perishables with positive lead times and multiple outstanding orders," Annals of Operations Research, Springer, vol. 284(1), pages 81-98, January.
    7. Yingdong Tian & Wensheng Yang & Kun Wen & Dawei Zhang, 2023. "Who is better for single and double coupon promotion? Comparison from dual‐channel and two‐period," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 2079-2093, June.
    8. Avinadav, Tal & Chernonog, Tatyana & Ben-Zvi, Tal, 2019. "The effect of information superiority on a supply chain of virtual products," International Journal of Production Economics, Elsevier, vol. 216(C), pages 384-397.
    9. Hanukov, Gabi & Avinadav, Tal & Chernonog, Tatyana & Yechiali, Uri, 2020. "A service system with perishable products where customers are either fastidious or strategic," International Journal of Production Economics, Elsevier, vol. 228(C).
    10. Hanukov, Gabi, 2022. "Improving efficiency of service systems by performing a part of the service without the customer's presence," European Journal of Operational Research, Elsevier, vol. 302(2), pages 606-620.
    11. Han-Wen Tuan & Kuo-Chen Hung & Gino K. Yang, 2021. "Inventory Model with Fixed Shelf Life under Generalized Non-Increasing Demand," Mathematics, MDPI, vol. 9(21), pages 1-15, October.

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