DYNAMIC PRICING STRATEGIES IN SALES MANAGEMENT OF DISCRETE PRODUCTS WITH A LIMITED LIFETIME

Abstract

The paper is devoted to the development of a dynamic pricing strategy for the sale of goods with a limited shelf life. The case of sales of discrete goods to heterogeneous consumers who have at most a unit demand for sold goods and independent identically distributed estimates of its consumer value is considered. Such a structure of demand makes it possible to describe the optimal pricing strategy using a simple system of recursive equations, for which, in some cases, an analytical solution can be found. For the general case, a numerical algorithm has been developed for finding the optimal solution in the form of a feedback loop with time and the remaining stocks of unsold products as state variables. It is shown that optimal prices are non-increasing functions of both of these factors. These two properties, combined with the random nature of product sales, determine the rather complex dynamics of observed prices, examples of which are given in the paper. In particular, it is shown that although, on average, prices can be expected to decrease towards the end of the sales period, in some cases prices can increase and generally change quite chaotically. The proposed strategy is compared with the policy of fixed prices, the optimization of which under the conditions of the model is also a non-trivial task. The results of the comparison indicate the high economic efficiency of the dynamic price adjustment strategy, especially in cases when the product sold nears the end of its lifetime. It is shown that the general process of product sales can be represented as a controlled Markov process. This makes it possible to calculate any numerical characteristics of seller’s expected financial results depending on the model parameters. Based on the analysis of the results of numerical simulation, simple heuristics for sales management under conditions of incomplete information are also proposed.