Dynamic pricing with ‘BOGO’ promotion in revenue management

Kyoung-Kuk Kim, Chi-Guhn Lee and Sunggyun Park

International Journal of Production Research, 2016, vol. 54, issue 17, 5283-5302

Abstract: We consider a dynamic pricing problem when a seller, facing uncertain demands, sells a single product in a finite horizon. The seller actively adopts dynamic pricing and quantity discount schemes. The proposed model is based on the assumption that each customer has random reservation prices and the purchase size depends on the posted price and discount. We particularly focus on the widely adopted promotional schemes ‘buy one get one free’ and ‘50% off’ and study the optimal strategic choices of the seller. Analytical results together with numerical experiments are presented to help us obtain managerial insights. Additional numerical results for a generalised model are provided so as to examine the effectiveness of promotional schemes.

Date: 2016
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DOI: 10.1080/00207543.2016.1173250

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