Optimal dynamic pricing and replenishment policies for deteriorating items

Abstract

Article history: Received January 22 2014 Received in Revised Format June 6 2014 Accepted June 18 2014 Available online June 23 2014 Marketing strategies and proper inventory replenishment policies are often incorporated by enterprises to stimulate demand and maximize profit. The aim of this paper is to represent an integrated model for dynamic pricing and inventory control of deteriorating items. To reflect the dynamic characteristic of the problem, the selling price is defined as a time-dependent function of the initial selling price and the discount rate. In this regard, the price is exponentially discounted to compensate negative impact of the deterioration. The planning horizon is assumed to be infinite and the deterioration rate is time-dependent. In addition to price, the demand rate is dependent on advertisement as a powerful marketing tool. Several theoretical results and an iterative solution algorithm are developed to provide the optimal solution. Finally, to show validity of the model and illustrate the solution procedure, numerical results are presented. © 2014 Growing Science Ltd. All rights reserved