Price discounts for extraordinary purchases

This paper examines a firm’s response to a temporary price reduction on a regularly acquired item. Responses vary depending upon whether the discount is offered (i) on all items purchased regardless of the order size; (ii) on all items purchased if the order exceeds a certain minimum; or (iii) on only the amount in excess of the minimum. Different policies are also developed, depending upon whether (i) the sales period falls within a regular ordering cycle; (ii) the end of the cycle coincides with the end of the discount period; or (iii) one or more regular cycles fall within the discount period. In the development of optimal ordering policies, it is observed that, contrary to earlier results, more than one order may be optimal when the regular cycle falls within the discount period. Otherwise, a uniform purchasing strategy, with an order size which differs from the original, is shown to be preferred.