Price switching policies under advertising effect and dynamic environment in supply chain: Product life-cycle approach

Abstract

When should manufacturers and retailers change their prices? Should they change prices based on the phases of the product life cycle (PLC) that are affected by advertising or without its effect? To answer these questions, we develop dynamic models for analyzing market demand, pricing decisions, and advertising cost according to the properties of PLC phases. Our contributions extend beyond conventional analyses. For the first time, we introduce dynamic mathematical models that capture market demand, pricing decisions, and advertising costs, intricately aligning them with the unique attributes of each PLC phase. Furthermore, this study pioneers the consideration of the effect of advertising on demand but also examining its influence on the duration of PLC phases, shedding light on a previously unexplored facet of market behavior. Furthermore, our research presents a groundbreaking perspective on the relationship between advertising, pricing, and the PLC phases. Based on the PLC perspective, product prices, especially for electronic products, decrease over time. Therefore, manufacturers and retailers should adopt appropriate price-switching policies to remain competitive. This paper examines a dynamic supply chain consisting of one manufacturer and one retailer, that demand changes over time. The price switching policies including: 1) the first policy: at the beginning of the advertising-influenced PLC phases, and 2) the second policy: at the beginning of without advertising-influenced PLC phases, are investigated. The results indicate that the wholesale and retail prices under the second policy are always lower than the first policy. In the second policy, the retailer's profit is higher, if the price reduction rate is not too low, and the other hand the manufacturer's profit is higher than other policy.