Share-of-Surplus Product Line Optimisation with Price Levels

X G Luo,C K Kwong,J F Tang,Z C Zhang

doi:10.1155/2014/389749

Abstract

Kraus and Yano (2003) established the share-of-surplus product line optimisation model and developed a heuristic procedure for this nonlinear mixed-integer optimisation model. In their model, price of a product is defined as a continuous decision variable. However, because product line optimisation is a planning process in the early stage of product development, pricing decisions usually are not very precise. In this research, a nonlinear integer programming share-of-surplus product line optimization model that allows the selection of candidate price levels for products is established. The model is further transformed into an equivalent linear mixed-integer optimisation model by applying linearisation techniques. Experimental results in different market scenarios show that the computation time of the transformed model is much less than that of the original model.

Highlights

Today, many firms adopt the strategy of product line optimisation to satisfy diverse customer requirements and gain competitive advantages
In the numeric experiment section, the computation times of the original model and transformed model are compared in various market scenarios, and the results show that the transformed model is very effective
Let yij be a binary decision variable such that yij = 1 if all or a portion of customers in the ith segment choose the jth product and yij = 0 otherwise, and let xjk be a binary decision variable such that xjk = 1 if the kth price level is selected for the jth product and xjk = 0 otherwise; the optimisation problem can be formulated as the following nonlinear integer programming model (Model A): Max

Summary

Introduction

Many firms adopt the strategy of product line optimisation to satisfy diverse customer requirements and gain competitive advantages. Kraus and Yano [4] established the share-of-surplus product line optimisation model This model is nonconcave, which makes it very difficult to obtain the global optimal solution. Taking product price as a continuous decision variable and obtaining the precise optimal product price may not be necessary for most firms; an alternative approach is to select prices from the candidate price levels. This approach has been widely applied in many research papers related to other types of product line optimisation [7,8,9,10,11].

Optimisation Model and Linearisation

Numeric Experiments

Discussion and Conclusions