Applying the bootstrap method to newsvendor model incorporating group buying for optimal price discount and order quantity

Abstract

Purpose Group buying (GB) is a shopping strategy through which customers obtain volume discounts on the products they purchase, whereas retailers obtain quick turnover. In the scenario of GB, the optimal discount strategy is a key issue because it affects the profit of sellers. Previous research has focused on exploring the price discount and order quantity with a fixed selling price of the product assuming that customer demand is uncertain (but follows a known distribution). This study aims to look at the same problem but goes further to examine the case where not only customer demand is certain but also the demand distribution is unknown. Design/methodology/approach In this study, optimal price discount and order quantity of a GB problem cast as a price-setting newsvendor problem were obtained assuming that the distribution of customer demand is unknown. The price–demand relationship is considered in addition form and product form, respectively. The bootstrap sampling technique is used to develop a solution procedure for the problem. To validate the usefulness of the proposed method, a simulated comparison of the proposed model and the existing one was conducted. The effects of sample size, demand form and parameters of the demand form on the performance of the proposed model are presented and discussed. Findings It is revealed from the numerical results that the proposed model is appropriate to the problem at hand, and it becomes more effective as sample size increases. Because the two forms of demand indicate restrictive assumptions about the effect of price on the variance of demand, it is found that the proposed model seems to be more suitable for addition form of demand. Originality/value This study contributes to the growing literature on GB models by developing a bootstrap-based newsvendor model to determine an optimal discount price and order quantity for a fixed-price GB website. This model can assist the sellers in making decisions on optimal discount price and order quantity without knowing the form of customer demand distribution.

Optimal marketing channel and strategy in social commerce

“…In the case of publishing retail prices and considering consumers' heterogeneous preferences, whether ecommerce enterprises provide SGB options and which option combination is the best are the primary research issues to be considered [23]. Secondly, the optimal decisions of SGB have also been widely studied, such as the optimal price and order quantity [5,42]. For example, Wu and Zhu [36] discuss the optimal decision of enterprises considering the joint strategy of service quality and price under the SGB; Deng et al [9] propose an analytical model for the optimal price and maximum transaction size of sellers with limited capacity on the SGB platform.…”

Determining the Optimal Order Quantity with Compound Erlang Demand under (T,Q) Policy

“…In addition to SCBZ property, Kamburowski [9] developed a theoretical framework for analyzing the distribution-free Newsboy problems due to incomplete information. Similarly, Chen [10] considers unknown demand and demonstrates the appropriateness of applying the bootstrap method to Newsvendor model. Hnaien et al [11] focus on discrete distributions of probabilities of demand.…”

“…In this subsection, we vary the value of lead time L in order to analyze its impacts on the average inventory cost C. Thus we consider the various values of lead time L in the interval [1,10] and compute the corresponding average inventory cost C respectively. The outcomes are shown in Table 3 and Figure 4.…”

Joint pricing deteriorating inventory model considering product life cycle and advance payment with a discount facility

“…Jadidi et al [16] considered price-dependent stochastic demand with all-unit quantity discounts and the effect of transportation. Chen et al [5] optimized the discount strategy of an inventory model with an unknown customer demand distribution. Later, Shaikh et al [32] framed a temporary discount EOQ model where shortages were allowed with stock-dependent demand and time-varying deterioration rates.…”