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Author: Xing Hu
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
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Book Description
Many online retail channels face high rates of product returns. This poses a new challenge to the sellers' dynamic pricing problem when some returns in good condition can be resold in the selling season. To study the impact of product returns and guide sellers to adjust pricing policies, we build a product returns model by augmenting the classic monopolist's dynamic pricing framework. We show that the return dynamics can complicate the problem by making it generally not Markovian. We address the technical challenges both analytically and numerically. Our analysis finds that ignoring returns leads to over-pricing and can cause significant revenue loss when the demand is high, initial inventory is moderate, product return speed is high, and intuitively when return probability is high. The analysis yields easy-to-implement heuristic policies that have good and robust performance relative to the theoretical benchmarks. We obtain many important findings for managers. For example, restocking product returns can be highly profitable even when the restocking cost is considerably high. Gaining visibility to customers' product return decisions, albeit helps forecasting returns and gauge total sellable inventory level, often provides small revenue benefits once the seller properly adjusts its dynamic pricing.
Author: Xing Hu
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
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Book Description
Many online retail channels face high rates of product returns. This poses a new challenge to the sellers' dynamic pricing problem when some returns in good condition can be resold in the selling season. To study the impact of product returns and guide sellers to adjust pricing policies, we build a product returns model by augmenting the classic monopolist's dynamic pricing framework. We show that the return dynamics can complicate the problem by making it generally not Markovian. We address the technical challenges both analytically and numerically. Our analysis finds that ignoring returns leads to over-pricing and can cause significant revenue loss when the demand is high, initial inventory is moderate, product return speed is high, and intuitively when return probability is high. The analysis yields easy-to-implement heuristic policies that have good and robust performance relative to the theoretical benchmarks. We obtain many important findings for managers. For example, restocking product returns can be highly profitable even when the restocking cost is considerably high. Gaining visibility to customers' product return decisions, albeit helps forecasting returns and gauge total sellable inventory level, often provides small revenue benefits once the seller properly adjusts its dynamic pricing.
Author: Sajjad Najafi
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
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Book Description
We consider a multi-product dynamic pricing problem with limited inventories under the so-called Cascade Click model, which is one of the most popular click models used in practice for analyzing customers' click-and-search behavior in large-scale web analytic applications. We present three fundamental results. First, despite the highly non-linear structure of the problem, we derive a sufficiently general characterization of the optimal pricing policy and show that it has a different structure than the optimal policy under the standard pricing model. Second, we show that the optimal expected total revenues under the Cascade Click model can be upper-bounded by the objective value of an approximate deterministic pricing problem, and that this deterministic problem can be efficiently solved. This result is reminiscent of the classic upper-bound result in the standard Revenue Management (RM) setting, whose importance and impact on RM research in the past two decades cannot be overstated. Third, we show that two heuristic policies that are known to have strong performance guarantees in the standard RM setting can be properly adapted to the setting with Cascade Click model and retain their strong performance guarantees.
Author: Chia-Wei Kuo
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Category :
Languages : en
Pages : 0
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Although take-it-or-leave-it pricing is the main mode of operation for many retailers, a number of retailers discreetly allow price negotiation when some haggle-prone customers ask for a bargain. At these retailers, the posted price, which itself is subject to dynamic adjustments in response to the pace of sales during the selling season, serves two important roles: (i) it is the take-it-or-leave-it price to many customers who do not bargain, and (ii) it is the price from which haggle-prone customers negotiate down. In order to effectively measure the benefit of dynamic pricing and negotiation in such a retail environment, one must take into account the interactions among inventory, dynamic pricing, and negotiation. The outcome of the negotiation (and the final price a customer pays) depends on the inventory level, the remaining selling season, the retailer's bargaining power, and the posted price. We model the retailer's dynamic pricing problem as a dynamic program, where the revenues from both negotiation and posted pricing are embedded in each period. We characterize the optimal posted price and the resulting negotiation outcome as a function of inventory and time. We also show that negotiation is an effective tool to achieve price discrimination, particularly when the inventory level is high and/or the remaining selling season is short even when implementing negotiation is costly.
Author: Ioannis Stamatopoulos
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ISBN:
Category :
Languages : en
Pages : 46
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We study a model in which a monopoly firm designs the quality profile of its inventory and then dynamically updates its pricing menu for a finite selling horizon to maximize revenue. In a counterfactual scenario, a social planner goes through the same process to maximize total welfare. We show that in both scenarios the problem of dynamically pricing heterogeneous-quality (vertically differentiated) inventories is equivalent to that of dynamically pricing homogeneous-quality inventories, in the sense that a solution to one implies a solution to the other. Moreover, we prove a strong scarcity result, which suggests that the sale of a product drives up the prices on all remaining products, whether of higher or lower quality. We then consider product line design under a production technology that utilizes costly and potentially limited resources. We show that with unlimited (but costly) resources, the revenue maximizer under-supplies quality to all products compared to the social planner. With limited resources, we show that the revenue maximizer exhibits elitism: he over-allocates (under-allocates) resources on the production of high-quality (low-quality) products. However, as the volume of expected consumer arrivals increases to infinity, both the revenue maximizer and the welfare maximizer allocate resources equally across products.
Author: Qi Feng
Publisher:
ISBN:
Category :
Languages : en
Pages : 43
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Book Description
Inventory-based pricing under lost sales is an important, yet notoriously challenging problem in the operations management literature. The vast existing literature on this problem focuses on identifying optimality conditions for a simple management policy, while restricting to special classes of demand functions and to the special case of single-period or long-term stationary settings. In view of the existing developments, it seems unlikely to find general, easy-to-verify conditions for a tractable optimal policy in a possibly nonstationary environment. Instead, we take a different approach to tackle this problem. Specifically, we refine our analysis to a class of intuitively appealing policies, under which the price is decreasing in the post-order inventory level. Using properties of stochastic functions, we show that, under very general conditions on the stochastic demand function, the objective function is concave along such price paths, leading to a simple base stock list price policy. We identify the upper and lower boundaries for a candidate set of decreasing price paths and show that any decreasing path outside of this set is always dominated by some inside the set in terms of profit performance. The boundary policies can be computed efficiently through a single-dimensional search. An extensive numerical analysis suggests that choosing boundary policies yields close-to-optimal profit--in most instances, one of the boundary policies indeed generates the optimal profit, even when they are not, the profit loss is very marginal.
Author: Wen Chen
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ISBN:
Category :
Languages : en
Pages : 33
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Book Description
We study an average-cost stochastic inventory control problem in which the firm can replenish inventory and adjust price at anytime. We establish the optimality to change the price from low to high in each replenishment cycle as inventory is depleted. With costly price adjustment, scale economies of inventory replenishment are reflected in the cycle time instead of lot size -- An increased fixed ordering cost leads to an extended replenishment cycle but does not necessarily increase the order quantity. A reduced marginal cost of ordering calls for an increased order quantity, as well as speeding up product selling within a cycle. We derive useful properties of the profit function that allows for reducing computational complexity of the problem. For systems requiring short replenishment cycles, the optimal solution can be easily computed by applying these properties. For systems requiring long replenishment cycles, we further consider a relaxed problem that is computational tractable. Under this relaxation, the sum of fixed ordering cost and price adjustment cost is equal to (greater than, less than) the total inventory holding cost within a replenishment cycle when the inventory holding cost is linear (convex, concave) in the stock level. Moreover, under the optimal solution, the time-average profit is the same across all price segments when the inventory holding cost is accounted properly. Through a numerical study, we demonstrate that inventory-based dynamic pricing can lead to significant profit improvement compared with static pricing and limited price adjustment can yield a benefit that is close to unlimited price adjustment. To be able to enjoy the benefit of dynamic pricing, however, it is important to appropriately choose inventory levels at which the price is revised.
Author: Dimitris Bertsimas
Publisher:
ISBN:
Category :
Languages : en
Pages : 20
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A periodical multi-product pricing and inventory control problem with applications to production planning and airline revenue management is studied. The objective function of the single-period model is shown to be convex for certain types of demand distributions, thus tractable for large instances. A heuristic is proposed to solve the more complex multi-period problem, which is an interesting combination of linear and dynamic programming. Numerical experiments and theoretical bounds on the optimal expected revenue suggest that the extent to which a dynamic policy based on a stochastic model will outperform a simple static policy based on a deterministic model depends on the level of demand variability as measured by the coefficient of variation.
Author: Oben Ceryan
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ISBN:
Category :
Languages : en
Pages : 40
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Firms that offer multiple products are often susceptible to periods of inventory mismatches where one product may face shortages while the other has excess inventories. In this paper, we study a joint implementation of price- and capacity-based substitution mechanisms to alleviate the level of such inventory disparities. We consider a firm producing substitutable products via a capacity portfolio consisting of both product dedicated and flexible resources and characterize the structure of the optimal production and pricing decisions. We then explore how changes in various problem parameters affect the optimal policy structure. We show that the availability of a flexible resource helps maintain stable price differences across products over time even though the price of each product may fluctuate over time. This result has favorable ramifications from a marketing standpoint as it suggests that even when a firm applies a dynamic pricing strategy, it may still establish consistent price positioning among multiple products if it can employ a flexible replenishment resource. We provide numerical examples for the price stabilization effect and discuss extensions of our results to a more general multiple product setting.
Author: Régis Chenavaz
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Category :
Languages : en
Pages :
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Author: Nicholas C. Petruzzi
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Category :
Languages : en
Pages :
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