Dynamic pricing, promotion and replenishment policies for a deteriorating item under permissible delay in payments

Authors:
Yu-Chung Tsao;Gwo-Ji Sheen
Affiliations:
Institute of Industrial Management, National Central University, Chung-Li 320, Taiwan;Institute of Industrial Management, National Central University, Chung-Li 320, Taiwan
Venue:
Computers and Operations Research
Year:
2008

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Abstract

We study the problem of dynamic pricing, promotion and replenishment for a deteriorating item subject to the supplier's trade credit and retailer's promotional effort. In this paper we adopt a price- and time-dependent demand function to model the finite time horizon inventory for deteriorating items. The objective of this paper is to determine the optimal retail price, the promotional effort and the replenishment quantity so that the net profit is maximized. We discuss the properties and develop an algorithm for solving the problem described. The numerical analyses show that an appropriate promotion policy can benefit the retailer and that the promotion policy is important, especially for deteriorating items. Furthermore dynamic decision-making is shown to be superior to fixed decision-making in terms of profit maximization. Some special cases, such as with no credit period and for non-deteriorating items, are discussed as is the influence of the time-varying demand, the rate of deterioration and the credit period on the retailer behavior.