A Mathematical Analysis on Daily Inventory Clearance Pricing with Consumer's Reference Price

Title & Authors
A Mathematical Analysis on Daily Inventory Clearance Pricing with Consumer's Reference Price
Koide, Takeshi; Sandoh, Hiroaki;

Abstract
This paper discusses a clearance pricing on daily perishable products considering a reference price of consumers. The daily perishable products are sometimes sold at a discount price before closing time to stimulate demand when the number of unsold products is more than initially envisioned. The discount pricing results both in an increase of the revenue of the day and in a decrease of the disposal cost. The discounting, however, also declines a reference price of consumers which is a mental price and serves as an anchor price to judge if a current sales price is loss or gain for the consumers. An excess discounting decreases the demand for the products sold at a regular price in the future and diminishes long-term profit. This study conducts a mathematical analysis on the clearance pricing problem for a single period with stochastic variations both on demand and on the inventory level at clearance time. The expected profit function especially depends on the response of consumers to the clearing price against their reference prices. A procedure is proposed to derive an optimal clearance price when consumers are loss-neutral. A sufficient condition is shown to obtain an optimal price for loss-averse and loss-seeking consumers by an analogous procedure.
Keywords
Optimal Pricing;Clearance;Inventory;Reference Price;
Language
English
Cited by
1.
A Study on Multi-Period Inventory Clearance Pricing in Consideration of Consumer's Reference Price Effect,;;

Industrial Engineering and Management Systems, 2013. vol.12. 2, pp.95-102
1.
A Study on Multi-Period Inventory Clearance Pricing in Consideration of Consumer's Reference Price Effect, Industrial Engineering and Management Systems, 2013, 12, 2, 95
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