Abstract
The faster growth of technology stipulates the rapid development of new products; with the spread of new technologies old ones are outdated and their market demand declines sharply. The combined impact of demand uncertainty and short life-cycles complicate ordering and pricing decision of retailers that leads to a decrease in the profit. This study deals with the joint inventory and dynamic pricing policy for such products considering stochastic price-dependent demand. The aim is to develop a discount policy that enables the retailer to order more at the start of the selling season thus increase the profit and market share of the retailer. A multi-period newsvendor model is developed under the distribution-free approach and the optimal stocking quantities, unit selling price, and the discount percentage are obtained. The results show that the proposed discount policy increases the expected profit of the system. Additionally, the stocking quantity and the unit selling price also increases in the proposed discount policy. The robustness of the proposed model is illustrated with numerical examples and sensitivity analysis. Managerial insights are given to extract significant insights for the newsvendor model with discount policy.
Highlights
In today’s competitive economic environment, fluctuation in market demand is causing problems for businesses, especially those who are dealing with products having short life cycles
The comparison of applying the normal distribution and the scenario of the distribution-free approach with discounts is given by Moon et al [13]; they did not consider price dependent demand, their model is of a single period while this paper considered a multi period newsvendor problem
This paper studied joint pricing and inventory policies for the newsvendor model with discounted sales
Summary
In today’s competitive economic environment, fluctuation in market demand is causing problems for businesses, especially those who are dealing with products having short life cycles. The past 30 years has reshaped the landscape of the retail industry; retailers prefer to avoid the stock outs by ordering larger lot sizes, and a discount is offered on the remaining stock at the end of the selling season This increases the market share of the retailer because a strategic consumer waits patiently and buys the product when the price drops. This paper extends the classical newsvendor distribution-free model; the seller offers a progressive discount to generate more revenue. This model considers a retailer who is selling seasonal items and facing a stochastic demand.
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