Optimal Ordering Strategy for Goods at Multiple Retail Prices under Simultaneous Sales

Yunzhi Mu,Minchao Zheng,Leiyan Xu,Rui Shen,Zhiqing Meng,Gengui Zhou

doi:10.1155/2019/9627469

Abstract

To stimulate purchases from consumers, retailers nowadays use the multiple retail prices strategy (MRPS), i.e., selling the products at multiple prices simultaneously. The paper extends the current newsboy model and proposes an optimal ordering model for MRPS corresponding to uncertain consumer demands. The Lagrangian multiplier method is applied to solve the problem, and an algorithm for finding the approximate optimal total order quantity is designed. Numerical results show that MRPS is better than the single retail price strategy (SRPS). It further reveals that when there is an order quantity constraint, the retailer needs to control the number of retail prices; that is, retailer’s MRPS is affected by order quantity constraint; sensitivity analysis demonstrates that MRPS is also affected by the price discount coefficient in the case of no order quantity constraint while it is not affected by demand volatility. The research work provides some useful managerial inspirations for retailers.

Highlights

The multiple retail prices sales are widely used in practice
The contributions of this paper include the following: (1) the research is a beneficial supplement to the extant literature on multiple retail prices strategy (MRPS) of retailers and ordering decision problem; (2) we take the uncertainty in consumer demand into consideration, and based on expected profit maximization, we give the retailer simultaneous MRPS ordering strategy by establishing an extended newsboy model; (3) a solution algorithm, namely, the MRPS algorithm, is given to obtain the approximate optimal total order quantity of the retailer; (4) the paper solves the ordering problem of MRPS from the two perspectives, with and without order quantity constraint, compares the corresponding results, and derives insights to support the retailer’s optimal ordering decisions
Relevant representative studies on single retail price strategy (SRPS) can be found in literature [19,20,21,22,23,24,25,26,27], where the ordering decision of retailers selling products to customers at a single price is to minimize cost and/or maximize profit and the quantity discounts provided by suppliers include allunits discount, incremental discount, and other discounts

Summary

Introduction

The multiple retail prices sales are widely used in practice. Consumers often find that the same product is sold at multiple retail prices simultaneously online or offline, a promotional strategy of retailers. Motivated by this research gap, the present work attempts to establish an optimal ordering model for retailers providing simultaneous MRPS. The contributions of this paper include the following: (1) the research is a beneficial supplement to the extant literature on MRPS of retailers and ordering decision problem; (2) we take the uncertainty in consumer demand into consideration, and based on expected profit maximization, we give the retailer simultaneous MRPS ordering strategy by establishing an extended newsboy model; (3) a solution algorithm, namely, the MRPS algorithm, is given to obtain the approximate optimal total order quantity of the retailer; (4) the paper solves the ordering problem of MRPS from the two perspectives, with and without order quantity constraint, compares the corresponding results, and derives insights to support the retailer’s optimal ordering decisions.

Literature Review

Proposed Optimal Ordering Model for MRPS

MRPS Algorithm

Numerical Example

Findings

Conclusion