Track: Inventory Control

Abstract

This study models the problem of a retailer in making a joint pricing and inventory decision of a perishable product considering the price, stock, and promotional effort sensitive demand. The main objective is to determine the optimal price, replenishment schedule, and promotional effort cost to maximize total profit in a finite planning horizon. We show that the total profit generated during the planning horizon is a concave function of the price and the cost of promotional effort. It has been proven through an analytical approach that the optimal solution exists and is unique. We also develop an efficient algorithmic procedure to determine the optimal solutions of the proposed model. Numerical examples are provided to illustrate the proposed model's applicability. The optimal solution's sensitivity to key parameters has been investigated, and the results are discussed.