Responding to a one-time-only sales (OTOS) of a product subject to sudden obsolescence

With advancing technologies and shrinking life cycles, today many products are subject to sudden obsolescence. Manufacturers and vendors of products that are subject to sudden obsolescence often announce a one-time-only discount on these products. In this paper, we study a retailer's optimal response to such one-time-only sales (OTOS) of products subject to sudden obsolescence. We build a comprehensive model based on two relevant bodies of literature: the literature on one-time-only sales of non-perishable, non-obsolescent products, and the literature on inventory and pricing decisions for obsolescent products in the absence of any one-time-only considerations. Our model allows for price elasticity, accounts for various types of inventory holding costs, and deals with obsolescence costs and capital costs separately from the holding costs. Our model also allows for the ordering cost of the special one-time-only order to be different from the retailer's regular ordering cost. The model is general enough to accommodate non-obsolescent as well as obsolescent products in situations that do or do not involve an OTOS. A numerical example shows that the use of our model can provide some long-term gain and a particularly attractive short-term improvement in a retailer's profit. Sensitivity analysis shows that the benefits of our model are greatest when the discount is sizable; demand is highly price sensitive; and the retailer's ordering cost for the special order is small.