optimal time based consolidation policy with price sensitive demand abstract we consider a single item inventory system where shipments are consolidated to reduce the transportation cost using a time based consolidation policy and develop a mathematical model to obtain the optimal price replenishment quantity and dispatch cycle to maximize the total profit the long run average profit is computed and the optimality properties are obtained using the optimality properties we develop an efficient algorithm to obtain the optimal values of price replenishment quantity and dispatch cycle for the proposed policy we then extend our results to consider quantity discount of unit dispatch cost in order to compare the performances of the proposed policy with the optimal quantity based policy extensive numerical experiments are conducted and the total profit and the customer waiting time that represents quality of service are compared we also propose the quantity time based policy which is a hybrid approach and the numerical results show that additional profit can be obtained without sacrificing quality of service

competitive coupon targeting with the advent of panel data on household purchase behavior and the development of statistical procedures to utilize this data firms can now target coupons to selected households with considerable accuracy and cost effectiveness in this article we develop an analytical framework to examine the effect of such targeting on firm profits prices and coupon face values we also derive comparative statics on firms optimal mix of offensive and defensive couponing the number of coupons distributed redemption rates face values and incremental sales per redemption among our findings when rival firms can target their coupon promotions at brand switchers the outcome will be a prisoner s dilemma in which the net effect of targeting is simply the cost of distribution plus the discount given to redeemers

competition in posted prices with stochastic discounts we study price competition between firms over public list or posted prices when a fraction of consumers can subsequently receive discounts with some probability such stochastic discounts are a feature of markets in which some consumers bargain explicitly and of markets in which sellers use the marketing practice of couponing even though bargainers receive reductions off the posted prices the potential to discount dampens competitive pressure in the market thus raising all prices and increasing profits welfare falls because of the stochastic nature of the discounts which generates some misallocation of products to consumers stochastic discounts facilitate collusion by reducing the market share that can be gained from a deviation

analysis of an inventory system with exponential partial backordering abstract in this paper we study an inventory model with partial backlogging where unsatisfied demand is partially backlogged according to an exponential function in this model the total cost is the sum of the order cost the holding cost the backorder cost which includes a fixed cost and a cost proportional to the length of time for which the backorder exists and the cost of lost sales a general approach for finding the optimal policy is developed numerical examples are used to illustrate how the approach works

overconfident consumers in the marketplace when consumers sign contracts expectations about future usage of the product or service matter for instance the value provided by car insurance depends on how likely a consumer believes she is to file a claim the value provided by a gym membership depends on how often a consumer anticipates going to the gym and the value provided by a cellular phone contract depends on how many gigabytes of data a consumer anticipates using the standard modeling paradigm makes the expedient assumption that consumers have rational expectations imposing rational expectations drastically simplifies models and eliminates the need to directly measure beliefs as they coincide with the distribution of observed outcomes yet a large literature shows that consumer beliefs often deviate substantially from rational expectations in systematic ways this has important consequences for contract design firm profits consumer welfare and public policy the term overconfidence is used broadly in the psychology literature referring to both overoptimism and overprecision overoptimistic individuals overestimate their own abilities or prospects either in absolute terms or in comparison to others in contrast overprecise individuals place overly narrow confidence intervals around forecasts thereby underestimating uncertainty these biases can lead consumers to misforecast their future product usage or to overestimate their abilities to navigate contract terms in consequence consumer overconfidence causes consumers

the role of brand image and product characteristics on firms entry and oem decisions we investigate the optimal market entry and original equipment manufacturer oem decisions of a firm facing a market in which firms brands can be horizontally differentiated and products can be vertically differentiated the entrant might sell under its own brand and compete with an incumbent become a supplier to the incumbent or both findings reveal that when consumers perceive the firms are horizontally and vertically differentiated the entrant profits by simultaneously entering the market and establishing an oem arrangement with the incumbent in such competitive scenarios both buyer and seller increase profits by agreeing on wholesale prices that are not too low which softens both horizontal and vertical conflict between the firms findings also show that the incumbent may prefer to pay high wholesale prices to the entrant even if the incumbent had the option to source the product independently at a lower marginal cost when firms have the capability of producing each other s product lines su

the benefits of advance booking discount programs model and analysis consider a retailer who sells perishable seasonal products with uncertain demand due to the short sales season and long replenishment lead times associated with such products the retailer is unable to update demand forecasts by using actual sales data generated from the early part of the season and to respond by replenishing stocks during the season to overcome this limitation we examine the case in which the retailer develops a program called the advance booking discount abd program that entices customers to commit to their orders at a discount price prior to the selling season the time between placement and fulfillment of these precommitted orders provides an opportunity for the retailer to update demand forecasts by utilizing information generated from the precommitted orders and to respond by placing a cost effective order at the beginning of the selling season in this paper we evaluate the benefits of the abd program and characterize the optimal discount price that maximizes the retailer s expected profit

advanced supply chain planning with mixtures of backorders lost sales and lost contract abstract this paper investigates a supply chain system in which a supplier prepares for the selling season by building stock levels prior to the beginning of the season and shortages realized at the beginning of the season are represented as mixtures of backorders and lost sales backlogged items are replenished as soon as possible through an emergency procurement as opposed to waiting until the next scheduled delivery as in many continuous review scenarios and the backorder rate is modeled as a piecewise linear function of the magnitude of the shortage the often intangible cost associated with lost sales and customer goodwill is also quantified in particular the buyer and supplier are engaged in a contractual agreement and the loss of customer goodwill from the supplier s perspective is represented as the expected cost associated with violating the conditions of the contract the likelihood of contract cancellation is also represented as a function of the magnitude of shortage the optimal solution is derived in closed form for the case of exponential demand distribution and an example problem is illustrated with numerical data in order to demonstrate calculation of the optimal solution and corresponding sensitivity analysis for demand distributions in which the solution cannot be expressed in closed form

joint pricing and ordering policy for two echelon imperfect production inventory model with two cycles abstract this study deals with an imperfect epq economic production quantity price dependent inventory model over two types of cycles in the first cycle the retailer sells only good product with actual price and in the second he sells the products with a discount price in the production run time the non conforming items are produced at a random rate and they are reworked after the regular production run time and the reworked items are almost perfect as good as original quality items the retailer starts the second cycle when a certain percent of good items are left to him after the completion of regular production the retailer continues simultaneously two cycles up to which both types of the products are available to him now our objective is to find out optimal ordering lot size and optimal price for which the profit of the integrated model is maximum also we check the best strategy of retailer for the time of starting second cycle a numerical example is provided to illustrate the behavior and application of the model

managing strategic inventories via manufacturer to consumer rebates manufacturer to consumer rebates are a staple of modern supply chains such rebates are typically viewed as a means of price discrimination because of partial redemption by consumers however the proliferation of universally redeemed instant rebates suggests the practice may be motivated by additional considerations an issue we tackle in this paper our results demonstrate that consumer rebates can be particularly useful when a supply chain encounters inefficiencies stemming from strategic inventory buildup by retailers wary of high wholesale prices a retailer may hold excess inventory to convey a lower willingness to pay in future interactions and thereby strategically undercut future wholesale prices as a retaliatory consequence the manufacturer sets high near term wholesale prices the pull promotion from consumer rebates encourages more timely retail sales and in doing so undercuts but does not eliminate the retailer s strategic inventories in other words the introduction of consumer rebates can serve as an enticement for retailers to sell not just for consumers to buy perhaps surprisingly we find that the manufacturer retailer and consumers alike all benefit from the use of rebates this despite the fact that the manufacturer uses the rebates in self interest and as a strategic weapon this paper was accepted by yossi aviv operations management

price discrimination through offers to match price in this paper a firm discriminates between two classes of customer who have a different cost of information by coupling a list price with an offer to match the pr ice of any other shop if the list price elsewhere is lower the firm will be successful in discrimination the list price of each firm is increasing in the number of sellers and the total sales are decreasi ng in the number of sellers furthermore if sellers coordinate they discriminate more efficaciously and increase their profits by increa sing their total sales copyright 1987 by the university of chicago

modeling a multi attribute utility newsvendor with partial backlogging abstract traditional newsvendor models usually focus on single profit maximization or cost minimization approaches however making a monetary estimate of the consequences of lost sales as a result of shortages is often a difficult task for many practitioners besides there is still a lack of an explicit account of decision making judgments on the multiple consequences of making decisions with regard to order quantities in order to deal with this problem this paper presents a multi attribute utility model for the newsvendor problem with regard to profit the impacts of service level on corporate image and on customers goodwill and the impact on the environment arising from the disposal of unsold products demand is partially backlogged according to a decreasing exponential function of the waiting time the fundamental principles and limitations related to the application of the model built are also discussed

why do manufacturers issue coupons an empirical analysis of breakfast cereals we explore the relationship between shelf prices and manufacturers coupons for 25 readyto eat breakfast cereals we find that shelf prices are lower during periods when coupons are available this result is inconsistent with static monopoly price discrimination under a broad range of assumptions we present evidence that is inconsistent with both dynamic theories of price discrimination and explanations of couponing based on the vertical relationship between manufacturers and retailers we find support for models of price discrimination in oligopoly settings as well as suggestions that firmwide incentives may induce managers to use coupons and price cuts simultaneously finally lagged coupons have a positive effect on current sales suggesting that coupons are used to induce repurchase

price advertising and coupons in a monopoly model the paper studies the pricing and advertising policies of a monopolist in a situation where consumers discover prices by costly search the monopolist is shown to choose between no advertising and large scale advertising this is shown to be optimal behavior even with decreasing returns to scale to advertising expenditures which would a priori argue for small advertising expenditures the optimal advertising policy is undertaken in conjunction with a pricing policy that is characterized by downwardly rigid prices flexibility with regard to realizations of a cost parameter is achieved via couponing which even though it is untargeted allows for discrimination between ex ante identical consumers i introduction the failure of some prices to react to changes in demand and supply conditions has always attracted the attention of economists price rigidities are important for two reasons first they may cause and or reflect inefficiencies in the allocation of resources and second if prices are rigid the consequent quantity adjustments may have important macroeconomic implications a related issue is the potential discrepancy between posted and actual transaction prices in particular given that the latter are sometimes significantly more flexible than the former for example retailers tend to post the prices recommended by the manufacturer even though they might be ready to offer discounts in low demand states in fact in some durable goods markets the listed price is simply the starting price in a bargaining process between the seller and individual buyers in this paper i argue that in some contexts firms find it optimal to set relatively rigid posted prices due to the costs of price advertising but can still achieve some degree of flexibility by sending out coupons to a fraction of consumers i start from the observation that in decentralized markets the transmission of price information from sellers to buyers is usually a costly activity consumers can engage in costly search to find out prices and firms can engage in costly advertising to disseminate price information more specifically i analyze a static monopoly model in which the seller after privately observing his unit production

an inventory model with partial backordering and unit backorder cost linearly increasing with the waiting time as the implementation of jit practice becomes increasingly popular each echelon in a supply chain tends to carry fewer inventories and thus the whole supply chain is made more vulnerable to lost sales and or backorders the purpose of this paper is to recast the inventory model to be more relevant to current situations where the penalty cost for a shortage occurrence at a downstream stage in a supply chain is continually transmitted to the upstream stages the supplier in this case at the upstream of the supply chain is responsible for all the downstream shortages due to the chain reaction of its backlog the current paper proposes a model in which the backorder cost per unit time is a linearly increasing function of shortage time and it claims that the optimal policy for the supplier is setting the optimal shortage time per inventory cycle to minimize its total relevant cost in a jit environment

an economic order quantity model with partial backordering and all units discount abstract the classic economic order quantity model assumes that the unit purchasing cost is not based on the order quantity in practice a supplier may offer purchasers an all units discount we develop a model and solution procedure for the eoq with all unit discounts and partial backordering at a constant rate we show and illustrate with a numerical example how that model can be used to find the solution for the eoq with discount and full backordering a multi factor experiment is used to gain insights into the improvement in performance of the proposed procedure relative to using the basic eoq or the eoq with full backordering and to identify the model parameters that have the greatest impact on the model s performance

reward programs and tacit collusion reward programs a promotional tool to develop customer loyalty offer incentives to consumers on the basis of cumulative purchases of a given product or service from a firm reward programs have become increasingly common in many industries the best known examples include frequent flier programs offered by airlines frequent guest programs offered by hotels and frequent shopper programs offered by supermarkets despite the widespread business practice of reward programs research efforts on reward programs particularly in marketing have been scarce our paper takes an important step towards understanding the design of reward programs and its implications on pricing strategies we study a market that consists of two segments heavy and light user segments the key distinction between the two segments is that the heavy user segment purchases in each period and thus is a candidate for the reward programs in contrast the light user segment exits the market after one purchase and is not in a position to exploit reward programs an important feature of our model is that we allow for different price sensitivity between heavy user and light user segments our model closely examines the type of rewards a reward worth a dollar to the consumer might have different cost implications for the offering firm depending on the type of reward for example cash rewards have higher unit reward cost inefficient reward for the firm than a free product of the firm such as an airline ticket or long distance minutes efficient reward specifically we examine an interesting puzzle observed in the marketplace several firms offer a cash reward or a product not made by the firm such as jackets electronic items etc these firms could offer their own product as rewards and significantly lower their cost we examine whether there is any reason for such a seemingly suboptimal practice our analysis shows that reward programs weaken price competition by offering the incentives for repeat purchases reward programs increase a firm s cost to attract competing firms current customers because firms gain less from undercutting their prices equilibrium prices go up moreover as consumers become unwilling to switch because of potential rewards the firm with a larger market share in the heavy user segment charges higher prices therefore a low price in the first period which leads to a larger market share in the heavy user segment will always be followed by a high price in the second period in our model consumers are rational and can correctly anticipate firms incentive to offer lower prices initially to enroll them into the reward programs our paper offers an explanation as to why the type and amount of reward may vary across the programs we identify two determining factors for the selection of rewards size and relative price sensitivity of the heavy user segment we find that in a market with a small heavy user segment that is also much more price sensitive than the light user segment it is optimal for firms to offer the most inefficient rewards the intuition is based on the firms incentive to exploit the price insensitive light user segment by offering inefficient rewards firms are able to commit to weaker competition and therefore higher prices when the heavy user segment is large or not very price sensitive when compared to the light user segment competing firms should adopt the most efficient rewards to maximize their profit this may well be the case in a number of real world situations in which efficient rewards are quite prevalent we also find that optimal reward amount has a negative relationship with unit reward cost because both firms use rewards to attract the heavy users they tend to offer more when they adopt the more efficient rewards finally our paper identifies the relationship between market characteristics and theimpact of reward programs on firms profits and consumers benefits we find that firms gain from the adoption of reward programs as long as light users are not too price sensitive when light users are very price sensitive firms engage in intense price competition thus benefiting little from the loyalty of heavy users created through rewards because reward programs increase market prices light users who do not get the reward earn strictly lower benefit in contrast heavy users often stand to gain more from the reward program in most cases firms and the heavy users are better off at the expense of light users

deteriorating inventory model with quantity discount pricing and partial backordering inventory models with quantity discount pricing and partial backordering although common in practice have received very little attention from researchers the objective of this study is to develop a deterministic inventory model with quantity discount pricing and partial backordering when the product in stock deteriorates with time most retailers make pricing decisions of their products at certain times of the year and these decisions affect demand in this study the demand rate is assumed to decrease as price for the product increases unlike traditional inventory models that seek to minimize cost the objective of this study is to maximize profit the findings of this study are particularly relevant to retailers of deteriorating products in a competitive environment a numerical example is given to illustrate the theory

slippage in rebate programs and present biased preferences present biased preferences capture the idea that individuals may find immediate payoffs significantly more salient than any future payoffs rather than simply discounting the future in a time consistent manner in this paper we show that consumers present biased preferences can generate slippage and we explore whether this can explain firms use of mail in rebates we assume that the consumer population comprises members who have various degrees of present bias the model demonstrates that if consumers have homogeneous willingness to pay for a product and thus rebates do not serve as a mechanism for traditional price discrimination rebates may still profitably exploit slippage but to do so they must generate very high slippage rates this is because the rebate must greatly exceed the price markup because the rebate must compensate consumers for the cost of redemption and the delay in receiving the rebate the ability of rebate programs to take advantage of present biased consumers is quite limited in settings where there is significant variance in the degree of present bias within the population unless the extent of consumers present bias is highly correlated with their rebate redemption costs

the determinants of coupon usage this paper uses a large sample of survey data to investigate the empirical determinants of coupon usage the broad set of control variables allows for comparisons of the relative importance of indi

let me talk to my manager haggling in a competitive environment although negotiating over prices with sellers is common in many markets such as automobiles furniture services consumer electronics etc it is not clear how a haggling price policy can help a firm gain a strategic advantage or whether it is even sustainable in a competitive market in this paper we explore the implications of haggling and fixed prices as pricing policies in a competitive market we develop a model in which two competing retailers choose between offering either a fixed price or haggling over prices with customers there are two consumer segments in our analysis one segment thehagglers has a lower opportunity cost of time and a lower haggling cost than the other segment thenonhagglers when both retailers follow the same pricing policy then a haggling policy is more profitable than a fixed price policy only when the proportion of nonhagglers is sufficiently high we find two kinds of prisoners dilemma under some conditions a more profitable haggling policy can be broken by a fixed price policy and under other conditions a fixed price policy can be broken by a haggling policy surprisingly we show that under some conditions an asymmetric outcome with one retailer haggling and the other offering a fixed price is also an equilibrium

a price discrimination theory of coupons the objective of this paper is to analyze the consumer s decision in electing to use cents off coupons distributed by manufacturers of consumer products arguing that the decision to use coupons is based on the tradeoff between costs of using coupons and the savings obtained it is shown that coupons can serve as a price discrimination device to provide a lower price to a particular segment of consumers based on a price theoretic model it is shown that the users of coupons are more price elastic than nonusers of coupons and that the opportunity cost of time and other household resource variables are determinant factors in consumers decisions implications derived from the model are tested using diary panel data

a two stage sales forecasting procedure using discounted least squares the authors develop a two stage forecasting methodology for estimating the sales responses to marketing and environmental variables when it is likely that their impacts will change unpredictably over time the methodology is based on an integrated least squares procedure that uses regression analysis in stage 1 to estimate the coefficients of the controllable and environmental variables in combination with a stage 2 discounted least squares smoothing procedure that updates key parameters in response to changing market conditions the effectiveness of the methodology is demonstrated by applying it to weekly sales data from a major retail chain

a model of price promotions with consumer search this paper presents a price discrimination model of price promotions the distinguishing feature of our model is the explicit distinction between regular and promotional prices regular prices are chosen first then promotional prices further while regular prices are always available to everyone promotional prices are only available when offered and only to those who search for them we show that even a monopolist will offer random promotions under these circumstances furthermore as search costs increase the frequency and depth of promotions increase with competition for the promotion oriented consumers the seller becomes more aggressive in his promotional policies even more so as search costs increase the high reservation price consumers however end up worse off with competition

note on inventory model with a mixture of back orders and lost sales abstract competitiveness is an important means of determining whether a company will prosper business organizations compete with one another in a variety of ways among these competitive methods are time and cost factors the purpose of this paper is to examine the inventory models presented by padmanabhan and vrat international journal of systems sciences 21 1990 1721 with a mixture of back orders and lost sales we develop the criterion for the optimal solution for the total cost function if the criterion is not satisfied this model will degenerate into one cycle inventory model with a finite inventory period this implies an extension of shortage period as long as possible to produce lower cost however we know that time is another important factor in company competitiveness customers will not indefinitely wait for back orders a tradeoff will be made between the two most important factors time and cost the minimum total cost is evaluated under the diversity cycle time and illustrations are applied to explain the calculation process this work provides a reference for decision makers

the price elasticity of selective demand a meta analysis of econometric models of sales the author describes a meta analysis of econometric studies that estimated the elasticity of selective sales or market share to price the literature review yielded 367 suitable price elasticities

review of inventory systems with deterioration since 2001 abstract this paper presents an up to date review of the advances made in the field of inventory control of perishable items deteriorating inventory the last extensive review on this topic dates back to 2001 goyal s k and giri b c recent trends in modeling of deteriorating inventory european journal of operational research 134 1 16 since then over two hundred articles on this subject have been published in the major journals on inventory control indicating the need for a new review we use the classification of goyal and giri based on shelf life characteristics and demand characteristics contributions are highlighted by discussing main system characteristics including price discounts backordering or lost sales single or multiple items one or two warehouses single or multi echelon average cost or discounted cash flow and payment delay

a segment level hazard approach to studying household purchase timing decisions the increasing availability of customer level data and the willingness of marketers to customize the timing of their offers to consumers makes the accurate segment level description of household purchase timing decisions a compelling issue in this paper we employ a finite mixture accelerated failure time model to identify and characterize household segments in terms of their purchasing rates and their propensity to accelerate purchases due to marketing mix activities such an approach also promises to alleviate possible aggregation problems arising from the use of a common hazard rate for all households an application to household panel data suggested that infrequent buyers show higher propensity to accelerate than frequent buyers do and that positive duration effects are underestimated when not accounting for segment specific hazard rates copyright 2002 john wiley sons ltd

competitive price discrimination strategies in a vertical channel using aggregate retail data we explore opportunities for targeted pricing for a retailer that only tracks weekly store level aggregate sales and marketing mix information we show that it is possible using these data to recover essential features of the underlying distribution of consumer willingness to pay knowledge of this distribution may enable the retailer to generate additional profits from targeting by using choice information at the checkout counter in estimating demand we incorporate a supply side model of the distribution channel that captures important features of competitive price setting behavior of firms this latter aspect helps us control for the potential endogeneity generated by unmeasured product characteristics in aggregate data the channel controls for competitive aspects both between manufacturers and between manufacturers and a retailer despite this competition we find that targeted pricing need not generate the prisoner s dilemma in our data this contrasts with the findings of theoretical models due to the flexibility of the empirical model of demand the demand system we estimate captures richer forms of product differentiation both vertical and horizontal as well as a more flexible distribution of consumer heterogeneity

an inventory control model with stochastic review interval and special sale offer abstract periodic review inventory models are widely used in practice especially for inventory systems in which many different items are purchased from the same supplier however most of periodic review models have assumed a fixed length of the review periods in practice it is possible that the review periods are of a random stochastic length this paper presents an inventory control model in the case of random review intervals and special sale offer from the supplier the replenishment interval is assumed to obey from two different distributions namely exponential and uniform distributions also shortages are allowed in the term of partial backordering for this model its convexity condition is discussed and closed form solutions are proposed

clearance pricing and inventory policies for retail chains clearance pricing and end of season inventory management are challenging and important problems in retailing sales rates depend upon price seasonal effects and the remaining assortment of items available to customers there is little time to react to observed sales and pricing errors result in either loss of potential revenue or excess inventory to be liquidated this paper develops optimal clearance prices and inventory management policies that take into account the impact of reduced assortment and seasonal changes on sales rates versions of these policies have been tested and implemented at three major retail chains and these applications are summarized and discussed

positions and rewards the allocation of resources within a science based entrepreneurial firm we study the link between resource allocation and employee publication in the open science in a quantitative case study of one science based entrepreneurial firm we bridge the literature on incentives with that on authority structures to argue that a positive relationship between rewards and productivity will be strongest for individuals in positions of scientific leadership within the firm in a novel dataset we find that prolific publishers receive greater year end bonuses and are allocated additional direct reports but this relationship only holds for individuals in scientific leadership roles these results contribute to our understanding of resource allocation processes and reward structures in science based firms

the relationship between market characteristics and promotional price elasticities many empirical studies in marketing and economics have estimated brand price elasticities for specific products in markets their results indicate that price elasticities seem to differ across brands product categories retail outlets and regions however there has been very little research which examines the factors associated with these observed differences this paper focuses on the promotional price elasticities of established major brands in stable categories it identifies some characteristics of markets which may be associated with differences in price elasticities for frequently purchased nondurables a cross sectional model of the effect of these market characteristics on price elasticities is developed and estimated utilizing own price elasticity estimates for brands at twelve stores the results indicate market characteristics such as brand market share couponing activity display activity and feature activity explain a substantial amount of the variation in promotional price elasticities

coordinating price reductions and coupon events abstract in this article the authors use an economic model to show that it may be optimal to lower the retail price during a coupon event when marginal consumers have moderate hassle costs of coupon redemption results from the model offer predictions on the relationships among coupon redemptions shelf price and coupon face value the authors test these predictions on a large data set of hundreds of coupon events across six packaged goods categories the data show that when a small coupon face value is offered the shelf price is likely to be reduced they also find that coupon efficiency increases when there is a lower retail price the results are of interest to managers planning a promotion calendar and deciding whether to coordinate price promotions with coupon events and they contribute to economic theory when a firm moves from uniform pricing e g no coupons to second degree price discrimination e g coupons all consumers may face a lower price this finding has public policy implication

the strategic role of exchange promotions an exchange promotion allows consumers to turn in an old good and receive a discount toward the purchase of a new product the old good that is turned in can either be within the same category as the new good or it may be in a different category for example one can turn in an old cd player to count toward a new cd player a within category exchange or traditional trade in or toward a new television a cross category exchange this paper studies both within category and multicategory exchange promotions and analyzes their similarities and differences in a competitive setting with two firms we model exchange promotions and establish the equilibrium outcomes we find that categories in which consumers have a high level of waste aversion are more likely to have multicategory exchange promotions rather than within category or no promotions multicategory exchange promotions can increase both consumers replacement purchases and their new purchases interestingly we also find that strategic considerations can lead to a prisoner s dilemma outcome in which neither firm offers any kind of exchange promotion however waste aversion and multicategory exchange promotions can give firms stronger incentives to get out of the prisoner s dilemma outcome

modeling multiple sources of heterogeneity in multinomial logit models methodological and managerial issues we offer a framework to specify and estimate various sources of heterogeneity in multinomial logit brand choice models we let each brand specific intercept and each parameter of the explanatory variable vector vary randomly across households in addition we distinguish loyal households from the rest our results suggest that incorporating multiple sources of heterogeneity improves the model fit and suggests higher impact of marketing mix elements on brand choice we highlight the importance of incorporating multiple sources of heterogeneity the model we implement yields valuable managerial insights

a decision support system for planning manufacturers sales promotion calendars a common event in the consumer packaged goods industry is the negotiation between a manufacturer and a retailer ofthe sales promotion calendar determining the promotion calendar involves a large number of decisions regarding levels of temporary price reductions feature ads and in store displays each executed at the level of individual retail accounts and brand skus over several months or a year though manufacturers spend much of their marketing budget on trade promotions they lack decision support systems to address the complexity and dynamics of promotion planning previous research has produced insights into how to evaluate the effectiveness of promotional events but has not addressed the planning problem in a dynamic environment this paper develops a disaggregate level econometric model to capture the dynamics and heterogeneity of consumer response by modeling the purchase incidence timing choice and quantity decisions of consumers we decompose total sales into incremental and nonincremental baseline plus borrowed the response model forms the basis of a market simulator that permits us to search for the manufacturer s optimal promotion calendar subject to a set of constraints some of them imposed by the retailer via the simulated annealing algorithm calendar profits are the net result of the contribution from incremental sales minus the opportunity cost from giving away discounts to nonincremental sales and the fixed costs associated with implementing promotional events e g retagging features displays incremental sales result from promotion induced switching the acceleration and quantity promotion effects on those switchers increased consumption and the carryover effect from purchase event feedback we applied our approach to the promotion planning problem of a large consumer packaged goods company in a nonperishable staple product category suggested by company executives canned tomato sauce subject to a retailer pass through constant rate of 80 provided to us by the collaborating firm the optimal promotion calendar produced by the modeling system followed a pattern of frequent and shallow temporary price reductions with no feature or display activity we also analyze how that result would change under different retailer pass through scenarios our findings indicated that the manufacturer could substantially improve the profitability of its sales promotion activity and that there would be a concurrent positive effect on retailer profit and volume levels management reported to us that the insights from the use of the system were implemented in their promotion planning process and produced positive results a validation analysis on follow up data for one market showed that promotion activity could be significantly reduced as recommended with no adverse effect on the brand s market share as predicted to generalize the model beyond the specific category where it was implemented we conducted a sensitivity analysis on the profile of the calendar i e frequency depth and duration of deals with respect to changes in market response competitive activity and retailer pass through first we found that the optimal depth frequency and timing of discounts is stable for price elasticities ranging from near zero to around four in absolute magnitude we also found no systematic impact of competitive promotions on the profile of the optimal calendar for example variation in competitive activity did not affect the optimal depth or frequency of discounts lastly we found changes in retailer pass through to have a significant effect on the optimal depth and number of weeks of trade promotion that a manufacturer should offer this emphasizes the importance to manufacturers of having accurate estimates of pass through for purposes of promotion budgeting and planning

an inventory model with deteriorating items quantity discount pricing and time dependent partial backlogging abstract wee international journal of production economics 59 1999 511 in his interesting paper presented a deterministic inventory model with the following characteristics quantity discount schemes for the unit cost partial backlogging at a fixed rate deterioration of stock in time and demand rate being a linear function of the selling price in this article we generalize the work of wee 1999 more specifically we consider a model where the demand rate is a convex decreasing function of the selling price and the backlogging rate is a time dependent function which ensures that the rate of backlogged demand increases as the waiting time to the following replenishment point decreases

profitable pricing when market segments overlap in this paper we analyze profitable pricing strategies when market segments overlap overlapping markets are segments that are not perfectly sealed and leakage between them can occur different consumers are assumed to incur possibly different transaction costs if they choose to purchase in the low price market a monopolist seller knows the distribution of transaction costs across consumers and must choose an optimal pricing strategy in particular the monopolist must decide whether to charge a single price or to price differentiate conditions are derived under which price differentiation will be the most profitable strategy when price differentiation is optimal the equilibrium amount of leakage is determined endogenously unlike the standard economics textbook model of price discrimination in which zero leakage is determined exogenously and is usually given as a necessary condition for price discrimination we show that zero leakage is not necessary for differential pricing to be optimal and that

coupon redemption and its effect on household cheese purchases by endogenizing unit value and coupon redemption we estimate u s household cheese purchase quality choice and coupon redemption equations simultaneously zero purchases and missing values on coupons and unit values are taken into account in the model to correct for selectivity bias correlations among the three equations are found to be significant empirical findings show that high quality choice significantly decreases cheese purchases while cheese coupon usage significantly increases purchases we find that higher income households select higher quality cheese while larger households choose lower quality cheese for coupon redemption we find that african american and hispanic households redeem less while asian households have no significant difference compared to caucasian households

price dispersion in the grocery market this paper provides an exploratory study of price dispersion in the grocery market and checks for the consistency of the evidence on this price dispersion with the existing theories of price dispersion due to costly consumer search competition and consumer heterogeneity in the context of the grocery market three dimensions of price dispersion are studied price dispersion for a certain brand across stores price dispersion within a category in a store across brands and price dispersion over time for a certain brand the results show that the standardized price dispersion is positively correlated with consumer search costs competition and consumer heterogeneity

prices promotions and channel profitability was the conventional wisdom mistaken abstract because of the lack of empirical evidence supporting the shift of economic power from manufacturers to retailers it has been claimed that the conventional wisdom that retailers benefit more from the use of consumer promotions was mistaken this paper assesses this claim and examines how two different pricing approaches during manufacturers instant price promotions targeted at consumers impact on channel profits in a bilateral monopoly we found that manufacturers should only offer rebates when they keep their prior to promotion wholesale prices unchanged consistent with the conventional wisdom retailers do indeed take the lion s share of the promotion incremental profits surprisingly however we found that in the largest part of the parameter space manufacturers still earn more total channel profits than retailers over time the theoretical and managerial implications of these findings are discussed

competitive promotional strategies this article analyzes the equilibrium pricing strategies of brands engaged in a pricing game each brand has a monopoly market loyal consumers and competes with others in a common market called brand switchers in the case of a duopoly it is shown that the behavior of the brand switchers characterizes the equilibrium behavior of the duopolists this article focuses on two key comparative statics namely the depth of discounts away from a regular high price and the probability of giving a deal or the frequency of deals how these properties vary with the size of the loyal markets and the behavior of the brand switching population is discussed copyright 1988 by the university of chicago

a comparison between two pricing and lot sizing models with partial backlogging and deteriorated items abstract recently abad 2003 optimal pricing and lot sizing under conditions of perishability finite production and partial backordering and lost sale european journal of operational research 144 677 685 studied the pricing and lot sizing problem for a perishable good under finite production exponential decay partial backordering and lost sale in this article we extend his model by adding not only the backlogging cost but also the cost of lost goodwill we then analytically compare the net profits per unit time between abad s 2003 model and goyal and giri s 2003 the production inventory problem of a product with time varying demand production and deterioration rates european journal of operational research 147 549 557 model in abad s model the cycle starts with an instant production to accumulate stocks then stops production to use up stocks and finally restarts production to meet the unsatisfied demands by contrast in goyal and giri s model the cycle begins with a period of shortages then starts production until accumulated inventory reaches certain level and finally stops production and uses up inventory our theoretical results show that there is no dominant one between these two models furthermore we provide certain conditions under which one model has more net profit per unit time than the other finally we give several numerical examples to illustrate the results

opportunity cost inattention and the bidder s curse abstract auction winners sometimes suffer a bidder s curse paying more for an item at auction than the fixed price charged for an identical item by other sellers this seemingly irrational behavior is puzzling because the information necessary to avoid overpaying would appear to be readily available to bidders yet they seem to ignore it to understand this behavior we consider the bidders decisions whether to acquire information about the fixed price before bidding in the presence of opportunity costs our theory introduces costly information acquisition into an auction model with a fixed price aftermarket selling an identical good when information about the fixed price is costly bidders sometimes remain rationally ignorant and overbid in the auction generating the bidder s curse to assess the empirical validity of our proposed explanation we study the model s predictions in an experiment where subjects have an opportunity cost of looking up a fixed price and bid in an auction we find that information acquisition decreases and overbidding increases with opportunity cost as predicted most observed lookup behavior is rationalizable and rational ignorance reliably generates the bidder s curse

loss leader pricing and rain check policy loss leader pricing and rain check policies are common in retail markets yet research on these topics is surprisingly scarce in this paper we study the effects of leader pricing and rain check policy on stores profits and market outcomes suppose stores can accurately predict demand might they still run out of stock we investigate whether such a result is plausible when stores can offer rain checks the paper also helps resolve an issue that has recently attracted much attention should the ftc repeal its rule prohibiting stock outs of advertised sale items

determinants of store level price elasticity using weekly scanner data representing 18 product categories the authors estimated store specific price elasticities for a chain of 83 supermarkets they related these price sensitivities to a com

optimal production and selling policies with fixed price contracts and contingent price offers abstract this paper investigates optimal production and selling decisions for a single supplier with two types of customers specifically risk averse buyers would rather pay higher fixed prices with guaranteed supply contracts whereas risk prone buyers prefer to secure remaining stocks and pay lower contingent prices this study formulized this problem with a dynamic programming model and analyzed it further using successive approximations theoretical results indicate that no controls are needed for fixed price orders however thresholds exist for manufacturing and contingent price ordering policies these two types of threshold planes increased with the addition of waiting customers furthermore a sensitivity analysis of seasonal factors revealed that the optimal threshold plane shifts upward during high demand periods

an inventory model for perishable items in a lot size system with quantity discounts abstract an inventory model continuous in units and time is developed for perishable items in a lot size system that allows partially backlogging and partially lost saling the model is developed under deterministic demand instantaneous delivery with quantity discounts and any well behaved probability distribution for the time to perishables an example is given to illustrate the model

commercial use of upc scanner data industry and academic perspectives the authors report the findings from an exploratory investigation of the use of upc scanner data in the consumer packaged goods industry in the u s the study examines the practitioner community s view of the use of scanner data and compares these views with academic research forty one executives from ten data suppliers packaged goods manufacturers and consulting firms participated in wide ranging in person interviews conducted by the authors the interviews sought to uncover key questions practitioners would like to answer with scanner data how scanner data is applied to these questions and the industry s perspective regarding the success that the use of scanner data has had in each area the authors then compare and contrast practitioners views regarding the resolution of each issue with academic research this produces a 2 2 classification of each question as resolved or unresolved from the perspectives of industry and academia along the diagonal of the 2 2 issues viewed as unresolved by both groups are important topics for future research issues deemed resolved by both groups are correspondingly of lower priority in the off diagonal cells industry and academics disagree these topics should be given priority for discussion information exchange and possible further research practitioners reported that scanner data analysis has had the most success and been most widely adopted for decision making in consumer promotions i e coupons trade promotions and pricing for example logit and regression models applied to scanner data have revealed very low average consumer response to coupons which has directly led to reduced couponing activity managers also reported high levels of comfort with and impact from analyses of trade promotions and price elasticities while industry views most of the issues in these areas to be resolved academic research raises concerns about a number of practices in common commercial use these include price threshold analysis and trade promotion evaluation using baseline and incremental sales in product strategy advertising and distribution management practitioners reported that the use of scanner data has had more limited development success and impact in the case of new product decisions scanner data use has been slow to develop due to the inherent limitations of historicaldata for these decisions and a heavy reliance on traditional primary research methods in advertising scanner data is widely analyzed with models but confusion among practitioners is very high due to controversies about methods e g what level of data aggregation is best and conflicting results in distribution and retail management scanner data use has tremendous potential but a mixed track record to date thus practitioners view the use of scanner data as unresolved for most issues in product strategy advertising and distribution this view is largely though not entirely consistent with academic research which has only begun to address many of the key questions raised by practitioners in light of the large number of unresolved issues and mixed record of scanner data use to date the authors offer aseries of specific recommendations for immediate and long term research priorities that are likely to have the greatest impact on commercial utilization of upc scanner data topics of immediate priority include price thresholds and gaps baseline and incremental sales base price elasticity competitive reactions measurement of advertising effects management of brand equity rationalization of product assortments and category management long term priorities include a greater emphasis on profitability versus sales or market share developing prescriptive models versus descriptive models and the need for industry standards

absorptive capacity coauthoring behavior and the organization of research in drug discovery we examine the interface between for profit and publicly funded research in pharmaceuticals firms access upstream basic research through investments in absorptive capacity in the form of in house basic research and pro publication internal incentives some firms also maintain extensive connections to the wider scientific community which we measure using data on coauthorship of scientific papers between pharmaceutical company scientists and publicly funded researchers connectedness is significantly correlated with firms internal organization as well as their performance in drug discovery the estimated impact of connectedness on private research productivity implies a substantial return to public investments in basic research

individual preferences organization and competition in a model of r d incentive provision abstract understanding the organization of rd 2 knowledge is not perfectly appropriable 3 scientists are responsive to both monetary and non monetary incentives and 4 firms compete on the product market we show that both knowledge spillovers and market competition affect the incentives given to scientists and these effects interact first high knowledge spillovers lead firms to soften incentives when product market competition is high and to strengthen incentives when competition is low second the relationship between the intensity of competition and the power of incentives is u shaped with the exact shape depending on the degree of knowledge spillovers we also show that the performance contingent pay for both applied and basic research increases with the non pecuniary benefits that scientists obtain from research while the fixed component decreases we relate our findings to the existing empirical evidence and also discuss their implications for management and public policy

pricing and promotions in asymmetric duopolies this paper develops a modeling framework for making promotions decisions in contrast to some of the prior research the framework explicitly models promotions its central feature is the view of promotions competition as a multistage game in which regular prices are chosen first followed by the choice of promotion depths and frequencies it is used to illustrate the nature of competition between a national brand and private label in equilibrium the national brand promotes to ensure that the private label does not try to attract consumers away from the national brand moreover the private label does not promote this equilibrium is also contrasted with varian s framework used by other researchers in which mixed strategy equilibrium prices are interpreted as promotions

rebates inventories and intertemporal price discrimination richard p saba we demonstrate that universally redeemed rebates can increase manufacturer profits by reducing the incentives of downstream retailers to hoard inventories when optimal wholesale prices vary predictably over time by bypassing retailers and making direct contracts with buyers the manufacturer can increase the variations in effective prices paid by consumers without concomitantly creating larger incentives for retailers to hold inventories during profitable high demand periods manufacturer revenues are ordinarily constrained by competition from retailer inventories thus limiting profits however by selectively offering rebates to consumers while maintaining high wholesale prices low demand periods can be accommodated without inducing retailer hoarding jel d4 l1 general motors corp is emptying its bag of marketing tricks in an all out effort to force its u s market share back up to 30 of light vehicle sales that is good news for gm customers because the manufacturer is offering financing at less than 1 or cash rebates of as much as 3 000 a vehicle wall street journal sept 16 1998 i introduction we tackle a fundamental economic question if general motors or any manufacturer wants to increase unit sales why does the necessary price cut occur indirectly in the form of a rebate it is well known that in cases of perfect competition or monopoly a tax or subsidy on buyers is equivalent to the same tax or subsidy on sellers in that each leads to the same net prices and the same equilibrium quantities a rebate is effectively a subsidy offered to the buyer whereas a cut in the wholesale price is effectively a subsidy to the seller under conditions of perfect competition or monopoly a manufacturer should be able to achieve identical outcomes in either of the two ways the challenge is to explain why rebates or coupons are used redemption of coupons and rebates is costly to both consumers and issuers while a price cut of equivalent size can be implemented at a much lower cost one would expect the price reduction strategy to dominate the strategy of issuing coupons or rebates to all buyers yet it apparently does not throughout the 1990s for example chrysler ford and general motors consistently offered a more extensive array of consumer oriented indirect price cuts via rebates than dealer incentive programs 1 the most common explanation for the use of rebates and coupons is that they enable either manufacturers or retailers who possess some monopoly power to engage in third degree price discrimination 2 consumers whose reservation prices lie below the price charged by the manufacturer or retailer are induced to purchase the item by a sufficiently large rebate or coupon yet certain aspects of the practice of offering coupons and rebates are inconsistent with the standard price discrimination explanation rebates often are given automatically to all customers at the time of purchase purchasers of automobiles and other big ticket items are given the option of applying the rebate to their down payment or receiving the cash as noted by hanley 1987 and higgins 1989 sellers of less costly items recenfly have started providing instant rebates or on package coupons which can easily be used by all buyers at the time of purchase these innovations have dramatically lowered redemption costs for consumers and boosted redemption rates 3 moreover bowman 1980 demonstrates that holding redemption costs constant there is a positive relationship between the size of the coupon rebate and the likelihood of consumer redemption the implication of this empirical regularity is expressed succinctly by gerstner and hess 1991b p 5 while price discrimination is a reasonable exp lanation for cents off coupons for dollars off rebates such as those given by manufacturers of household appliances it is not

a survey of deterministic models for the eoq and epq with partial backordering models for the basic deterministic eoq or epq problem with partial backordering or backlogging make all the assumptions of the classic eoq or epq model with full backordering except that only a fraction of the demand during the stockout period is backordered in this survey we review deterministic models that have been developed over the past 40 years that address the basic models and extensions that add other considerations such as pricing perishable or deteriorating inventory time varying or stock dependent demand quantity discounts or multiple warehouses

theoretical models of sales promotions contributions limitations and a future research agenda our objective in this paper is to review theoretical models of sales promotions we highlight the key contributions of these models discuss their limitations and outline an agenda for future research managerial questions examined in these models include some very fundamental issues such as why firms resort to the use of sales promotions in mature markets and why the use of sales promotions has increased dramatically during the last two decades also included in this review are models that address firm level strategic issues such as the allocation of dollars between advertising and sales promotions and the relative emphasis on trade promotions vis a vis consumer promotions we also review theoretical models that explain how consumers respond to price promotions and what type of sales promotion tools may be superior to others in a particular market the review concludes with a possible agenda for future research

price competition under stockpiling and flexible consumption abstract conventional wisdom suggests that the main effect of price promotion is on brand switching i e secondary demand however some recent studies demonstrate that the primary demand expansion effect can be considerably larger than previously believed a significant driver of this primary demand effect is consumer stockpiling in response to price promotions indeed experimental studies have shown that additional inventory on hand can lead to an endogenous increase in consumption the authors develop a model of price competition between firms in response to the stockpiling and subsequent consumption dynamics of consumers in this setting the flexible consumption effect causes more intense price competition deeper promotions and an increase in the frequency of promotions the authors use two years of scanner panel data from eight product categories and 4313 stockkeeping units to test three implications of the theoretical model they find strong support for each

optimal pricing and lot sizing under conditions of perishability and partial backordering we formulate a generalized model of dynamic pricing and lot sizing by a reseller who sells a perishable good we assume that when it is economic to backlog demand the reseller can plan for periods of shortage during which demand can be partially backordered when the good is highly perishable the reseller may need to backlog demand in order to market the good at a reasonable price we present a simple solution procedure for solving the optimization problem the procedure entails solving first a single nonlinear equation and then if required two nonlinear equations

research note consumer heterogeneity and competitive price matching guarantees price matching guarantees are widely used in consumer and industrial markets previous studies argue that they are a marketing tactic that facilitates implicit price collusion this is because once a store adopts this marketing tactic its rivals can no longer steal its customers by undercutting its price and hence they have little incentive to initiate price cuts while a store with price matching guarantees has no fear of losing customers to rivals price cuts it has every incentive to raise its own price to charge a higher price to its loyal consumers a growing body of legal literature uses this argument today to justify calls for antitrust actions against stores employing this marketing tactic however this theoretical conclusion baffles practitioners and industry experts in practice sellers typically embrace this marketing tactic in response to heavier competition and a growing bargain consciousness among shoppers the introduction of price matching guarantees by a store is frequently interpreted by industry observers as the initiation of a price war rather than a signal of price collusion this assertion is supported in many instances by the fact that stores that introduce price matching guarantees also roll back their prices and typically suffer subsequent loss of profits most ironically the favorite examples used by researchers to illustrate how price matching guarantees can enforce price collusion crazy eddie and nobody beats the wiz have subsequently either gone bankrupt or filed for federal bankruptcy protection in this study we show that price matching guarantees can indeed facilitate competition the expected prices and profits can be strictly lower when all stores adopt price matching guarantees than when they are not allowed to this is because the adoption of price matching guarantees generates not only a competition dampening effect which has been recognized in the literature but also a competition enhancing effect this latter effect comes from the fact that price matching guarantees encourage price search by those consumers who prefer to shop at a particular store but are mindful of saving opportunities these consumers will have incentives to obtain the rival store s price when their favorite store offers price matching guarantees to avail themselves of the lowest possible price at their favorite store as a result price matching guarantees reduce the number of purchases at the store from those consumers who would have paid the full price and thus prompt a store to price more aggressively to bid for more incremental sales this competition enhancing effect can more than offset the competition dampening effect in markets where consumers differ in their price search costs and store loyalty thus our study casts doubt on the advisability of blanket prohibition on price matching guarantees our argument relies only on consumer segmentation and on the phenomenon of periodic sales both of which are common in retail markets we arrive at our conclusion by incorporating bargain shoppers and opportunistic loyals into the standard sales promotion models in contrast the past literature on price matching guarantees ignores the ubiquitous phenomenon of sales in retail markets and overlooks those consumers who prefer to shop at a particular store but are alert to saving opportunities as a result it is troubled by two awkward conclusions on the one hand price matching guarantees simply remove rivals incentives to undercut in price and hence also their incentives to run sales this implies that the adoption of price matching guarantees in a market will eliminate the phenomenon of sales which is obviously counterfactual on the other hand in equilibrium no consumer actually invokes price matching guarantees as each player has incentives to close any price gap in the market this is obviously false based on our casual observations and our conversations with store managers theoretical research on the subject thus far has been overwhelmingly one sided and empirical or experimental studies are conspicuously lacking we hope that our conclusion will spark further research in both directions a healthy debate will broaden our perspective on an issue of great importance in formulating public policies and in managerial decision making

technical note personalized dynamic pricing of limited inventories prior work has investigated time and inventory level dependent pricing of limited inventories with finite selling horizons we consider a third dimension in addition to time and inventory level that the firms can use in setting their prices the information that the firm has at the individual customer level an arriving customer provides a signal to the firm which is an imperfect indicator of the customer s willingness to pay and the firm makes a personalized price offer depending on the signal inventory level and time we consider two different models full personalization and partial personalization in the full personalization model the firm charges any price it wishes given the customer signal while in the partial personalization model the firm can charge one of two prices we find that a mere correlation between the signals and customers willingness to pay is not sufficient to ensure intuitive relationships between the signal and the optimal prices we determine a stronger condition which leads to several structural properties including the monotonicity of the optimal price with respect to the signal in the full personalization model for the partial personalization model we show that the optimal pricing policy is of threshold type and that the threshold is monotonic in the inventory level and time

an economic order quantity model with partial backordering and a special sale price abstract a constant unit purchase cost is one of the main assumptions in the classic economic order quantity model in practice suppliers sometimes offer special sale prices to stimulate sales or decrease inventories of certain items in this paper we develop an eoq model with a special sale price and partial backordering we prove the convexity of the cost reduction function if a special order is placed at the special sale price a solution method is proposed and numerical examples are presented

a structural equations analysis of the impact of price promotions on store performance guided by past research conventional wisdom in the retailing area and microeconomic theory the authors develop a series of hypotheses about the effects of loss leaders in store price specials