Retailer’s replenishment policy for deteriorating item in response to future cost increase and incentive‐dependent sale

In a competitive business environment, enterprises usually try to maximize their revenues by providing attractive incentives. This paper develops a model to simultaneously determine the inventory and pricing policies of a retailer with contractual agreement. The replenishment plan, pricing policy, and schedule of the special sale plan with future purchasing price increase and incentive demand are considered in a deteriorating item inventory model with a finite planning horizon. We provide a comprehensive analysis to derive the optimal special sale period, the optimal number of deliveries and the optimal retailer’s selling price. A numerical example is presented to demonstrate the theory. The results show that demand rate, price and other incentive policies are critical in managing deteriorating inventories.