Coordinated replenishment and marketing policies for non-instantaneous stock deterioration problem

Abstract

This paper provides an integrated model for dynamic pricing and inventory control of non-instantaneous deteriorating items. To tackle dynamic nature of the problem, not only the price is modeled as a time-dependent function of the initial selling price and the discount rate but also the impact of changes in price is incorporated into the demand model. The product is sold at the initial price value in the time period with no deterioration; subsequently it is exponentially discounted to boost customer’s demand. Inspired by the influential impact of promotion on stimulating sales, the demand rate is linked to the frequency of advertisement in each replenishment cycle as well. Useful theoretical results are derived demonstrating existence and uniqueness of the optimal solution based upon which an iterative solution algorithm is developed. The solution procedure is illustrated through numerical examples that are accompanied by sensitivity analyses of the key parameters of the model.