Optimal markdown pricing for holiday basket with customer valuation

Haijun Wang, Shanling Li and Jianwen Luo

International Journal of Production Research, 2018, vol. 56, issue 18, 5982-5996

Abstract: We consider a problem in which a retailer who plans to sell holiday basket during a holiday and needs to determine an optimal markdown price for remaining inventory after the holiday. The retailer also needs to determine an optimal inventory level to maximise the total expected profit during and after the holiday. We assume customers’ total intended spending on the holiday basket is a random variable that is realised during the holiday and customers purchase the holiday basket based on their valuations. We formulate the problem as a two-stage stochastic programming model with the first-stage decision determining an optimal inventory level and the second stage determining an optimal markdown price based on remaining inventory and the realisation of customers’ total intended spending. We show that we can derive a unique optimal markdown price corresponding to the realisation of customers’ total intended spending. At last, we provide numerical results to illustrate the impact of holiday price of the basket, the highest customer valuation as well as the salvage value of the basket, all of which affect the retailer’s decision on markdown price.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1080/00207543.2018.1427902 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:tprsxx:v:56:y:2018:i:18:p:5982-5996

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/TPRS20

DOI: 10.1080/00207543.2018.1427902

Access Statistics for this article

International Journal of Production Research is currently edited by Professor A. Dolgui

More articles in International Journal of Production Research from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().