Pricing and Replenishment of Competing Perishable Product Variants under Dynamic Demand Substitution

Abstract

I consider pricing and ordering decisions faced by a retailer selling a perishable product with a two‐period shelf life over an infinite horizon. In the first period, the product is “new”; in the next, it becomes “old.” The new product is perceived by customers to have a higher quality than the old product. Every period, the retailer makes three decisions: prices for the new and old products and how much new product to order. I first show, with some simple cases, that demand uncertainty can make the sale of the old product profitable. I then consider a more realistic case with dynamic demand substitution among customers. I recognize that the retailer's decisions may be constant or may vary across different periods, under different contexts. For instance, varying the price of the new product can sometimes be difficult due to the negative impact it generates among customers. I find that (i) the benefit obtained from selling the old product with constant decisions is much higher than the benefit from allowing all the decisions to vary; (ii) the former benefit increases with a higher procurement cost, a higher quality of the new product, and higher demand volatility; however, the latter benefit is non‐monotone in these parameters; (iii) most of the latter benefit can be obtained by just changing the order quantity; and (iv) as the inventory of the old product increases, when all the decisions vary, the optimal price of the new product may increase or decrease.

Coordinating a supply chain for deteriorating items with a revenue sharing and cooperative investment contract

“…Liu et al [20] study joint dynamic pricing and investment strategy for perishable foods, in which the demand is dependent on price and quality. Researches such as [21][22][23][24][25][26] also consider pricing and inventory control problem for deteriorating items.…”

“…and solving the inequalities Π r ZΠ D r and Π m Z Π D m , we can get inequalities(24), whereK 1 ¼ c d ðα À βp I ÞÀ hðα À βp I Þ e θð1 À f I ÞT À 1 hðα À βp I Þuf 0I θ 1À f I 2 e θð1 À f I ÞT þ 1 hðα À βp I Þuf 0I ðe θð1 À f I ÞT À 1Þ θ 2 1À f I 3 T À ðα À βp I Þ e θð1 À f I ÞT À 1 θTð1Àf I Þ hT þ c d θTð1Àf I Þ e θð1 À f I ÞT À 1 À h θð1 À f I ÞT À e θð1 À f I ÞT À 1 θð1Àf I ÞT ! hT þ c d θTð1Àf I Þ e θð1 À f I ÞT À 1 À h ðα À βp I Þðe θð1 À f I ÞT À 1Þ θð1Àf I ÞT hT þ θTð1Àf I Þðc d þ 2p I Þ e θð1 À f I ÞT À 1 À αθTð1Àf I Þ βðe θð1 À f I ÞT À 1Þ !…”

Asymmetric Pricing and Replenishment Controls for Substitutable Products

“…In addition, there is also recent work on joint pricing and inventory control for items that deteriorate from one period to the next. Sainathan () considers the pricing and ordering decisions in such a setting where a product has limited shelf life and deteriorates in the next period. He finds that the optimal price for the new product may increase or decrease with the inventory for the old product and that the benefit of offering the old product is higher when replenishment is costlier and when the quality level of the new product is higher.…”

Ordering and Pricing Strategies for Fresh Products with Multiple Quality Levels Considering Consumer Utility

“…Li et al (2012) studied the joint pricing and inventory control problem for perishables when a retailer does not sell new and old inventory at the same time [11]. Sainathan (2013) considered pricing and ordering decisions faced by a retailer selling a perishable product with a two-period shelf life over an infinite horizon [12]. Those scholars considered multiple quality levels of deteriorating or decaying products, however, they are not on the background of fresh products.…”