Construction of a model towards EOQ and pricing strategy for gradually obsolescent products

Due to the rapid advance of technology, manufacturers’ marketing models and quickly changing consumer tastes, products such as apparel, clothing accessories and consumer electronics are likely to face the problem of short product life cycles. This study deals with the problem of determining order quantity and multi‐discount selling prices for these types of gradually obsolescent products, in which two novel proposals are presented as follows: (1) without considering any exogenous factors that could affect demand, we develop a time‐dependent demand model that appropriately portrays an integrated demand behavior associated with the characteristic of obsolescence; (2) we then treat the selling price as an exogenous factor influencing demand and, referring to the linear demand D = a ‐ ßp, the effect that ‘the increase of demand due to price change is linearly correlated with the difference between two consecutive selling prices’ is incorporated, so as to make the demand model be a function of both time and selling price. Afterwards, optimization models are hereby formulated to predetermine pricing strategy with a limited number of price changes by maximizing retailer’s profit. As a result, numerical examples illustrate that the multi‐discount model indeed provides higher total profit than a single discount one. This is presented along with the result analysis conducted to gain some managerial insights.