Joint optimization on pricing, promotion and inventory control with stochastic demand

Ju-Liang Zhang, Jian Chen and Chung-Yee Lee

International Journal of Production Economics, 2008, vol. 116, issue 2, 190-198

Abstract: Firms often utilize and coordinate dynamic adjustment of price, non-price promotions such as advertisement and recruitment of excellent salespeople and proper inventory replenishment policies to satisfy customer demands and achieve maximal profit. This paper provides an analytical model for obtaining optimal decisions jointly on pricing, promotion and inventory control. Specifically, we study a single item, finite horizon, periodic review model in which the demand is influenced by price and promotion, and the objective is to maximize the total profit. We characterize the optimal policy and provide solution for coordinating promotion, pricing and inventory replenishment. We show that the optimal promotion policy is a threshold policy under some reasonable assumptions and once the promotion is determined the optimal inventory/pricing policy is a base-stock-list-price policy. Numerical study is also provided to demonstrate the contribution of our model.

Keywords: Stochastic; inventory; management; Markov; chains; Pricing; Finite; horizon; Promotion (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:116:y:2008:i:2:p:190-198

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