Periodic pricing of seasonal products in retailing

Periodic pricing of seasonal products in retailing

0.00 Avg rating0 Votes
Article ID: iaor1998599
Country: United States
Volume: 43
Issue: 1
Start Page Number: 64
End Page Number: 79
Publication Date: Jan 1997
Journal: Management Science
Authors: ,
Keywords: programming: dynamic, stochastic processes
Abstract:

This paper studies intertemporal pricing policies when selling seasonal products in retail stores. We first present a continuous time model where a seller faces a stochastic arrival of customers with different valuations of the product. For this model, we characterize the optimal pricing policies as functions of time and inventory. We use this model as a benchmark against which we compare more realistic models that consider periodic pricing reviews. We show that the structure of the optimal pricing policies in this case is consistent with the procedures observed in practice; retail stores successively discount the product during the season and promote a liquidation sale at the end of the planning horizon. We also show that the loss experienced when implementing periodic pricing reviews instead of continuous policies is small when the appropriate number of reviews is chosen. Several interesting economic insights emerge from our analysis. For example, uncertainty in the demand for new products leads to higher prices, larger discounts, and more unsold inventory. Finally, we study the effect of announced discount policies on prices and profits. We show that stores that have adopted this type of strategy usually set prices such that with high probability the merchandise is sold during the first periods and the largest discounts rarely take place.

Reviews

Required fields are marked *. Your email address will not be published.