Coordinating Clearance Markdown Sales of Seasonal Products in Retail Chains

Gabriel Bitran, René Caldentey and Susana Mondschein
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Gabriel Bitran: Massachusetts Institute of Technology, Cambridge, Massachusetts
René Caldentey: Department of Industrial Engineering, University of Chile
Susana Mondschein: Department of Industrial Engineering, University of Chile

Operations Research, 1998, vol. 46, issue 5, 609-624

Abstract: In this paper we propose a methodology to set prices of perishable items in the context of a retail chain with coordinated prices among its stores and compare its performance with actual practice in a real case study. We formulate a stochastic dynamic programming problem and develop heuristic solutions that approximate optimal solutions satisfactorily. To compare this methodology with current practices in the industry, we conducted two sets of experiments using the expertise of a product manager of a large retail company in Chile. In the first case, we contrast the performance of the proposed methodology with the revenues obtained during the 1995 autumn-winter season. In the second case, we compare it with the performance of the experienced product manager in a “simulation-game” setting. In both cases, our methodology provides significantly better results than those obtained by current practices.

Keywords: Perishable/aging items; short season no replenishment; Marketing/pricing; tradeoff of revenue and profit; Shochastic; heuristic approach (search for similar items in EconPapers)
Date: 1998
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