Original scientific paper
https://doi.org/10.1080/1331677X.2023.2180410
Dynamic pricing and inventory control of online retail of fresh agricultural products with forward purchase behavior
Xiong-zhi Wang
Song Liu
Tingting Yang
Abstract
In this paper we formulate and analyze a novel model on a
retailer’s inventory and pricing decisions for fresh agricultural
products with consumers’ forward consuming behavior under
online channel. We consider a dynamic stochastic setting, where
every period consists of two stages, discounting pricing stage and
regular sale stage. At the beginning of the period, the retailer
decides how much new fresh agricultural products to order and
sets discount price for leftover inventories from the previous
period which will be disposed otherwise, and determines regular
price for fresh products on the second stage, respectively. Since
forward purchase consumers may buy the products during discount
pricing stage, which may cannibalize future sales at regular
price, the retailer needs to make a trade-off decision between
regular price and discounting price. We bring forward a dynamic
optimization model and use nonlinear programming method of
Karush Kuhn Tucker condition to obtain the optimal dynamic
strategy, which is comparatively analyzed to dominate the related
static strategy. We also show that consumers forward buying
behavior will negatively influence the retailer’s profit. When the
price is set too low in regular or discounting sales, the profit will
show an up-down trend if the inventory exceeds a certain threshold.
Meanwhile, when fresh goods returns are allowed and resold
in the secondary stage, the retailer’s profit will increase. We finally
conduct numerical studies to further characterize the optimal policy,
and to evaluate the loss of efficiency under static policies
when compared to the optimal dynamic policy.
Keywords
Fresh agricultural products; pricing and inventory control; strategic consumers
Hrčak ID:
306539
URI
Publication date:
31.3.2023.
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