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Dynamic lot-sizing models with pricing for new products

Xiang Wu, (Yale) Gong, Yeming, Haoxuan Xu, Chengbin Chu and Jinlong Zhang

European Journal of Operational Research, 2017, vol. 260, issue 1, 81-92

Abstract: While previous dynamic lot-sizing (DLS) models mainly consider mature products, this study analyzes production planning decisions for new products. The demand dynamics caused by new product diffusion complicate production decisions for new products. We integrate DLS and discrete Bass models to provide optimal decisions for pricing and production planning problems. Moreover, we study the joint influence of product diffusion and pricing parameters on the DLS decisions. This leads to the following insights. First, coordinated production-pricing and dynamic pricing improve profitability. Second, the optimal pricing strategy is affected by market conditions. The penetration pricing strategy outperforms the skimming pricing strategy when consumers are less sensitive to relative price changes than to the introductory price, when the product diffuses slowly, or when the consumer initiative level is low. Otherwise, the latter outperforms the former. Finally, pricing strategies and product diffusion patterns reshape the cost structure of a firm. Coordinated decisions and dynamic pricing strategy substantially reduce the cost-revenue ratio, whereas an increase in the consumer initiative level or product diffusion speed can improve cost efficiency.

Keywords: Supply chain management; Coordinated production and pricing; Dynamic lot-sizing; New product diffusion (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1016/j.ejor.2016.12.008

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