Patent ID: 8843404

Claim:
A method for joint pricing and replenishment of freshness inventory, comprising: receiving sales data including sales price and quantities sold associated with a given product; determining product qualities and customer's sensitivities to the product qualities for a plurality of customer classes based on the received sales data; determining maximum cross-selling retailer price associated with each of the product qualities for a cross-selling scenario; determining cross-selling order-up-to levels for the plurality of product qualities based on the determined maximum cross-selling retailer price associated with each of the product qualities and a first objective function; computing, by a processor, cross-selling profit based on the determined cross-selling order-up-to levels based on the first objective function; determining maximum down-selling retailer price associated with each of the product qualities for a down-selling scenario; determining down-selling order-up-to levels for the plurality of product qualities based on the determined maximum down-selling retailer price associated with each of the product qualities and a second objective function; computing cross-selling profit based on the determined down-selling order-up-to levels based on the second objective function; determining maximum up-selling retailer price associated with each of the product qualities for an up-selling scenario; determining up-selling order-up-to levels for the plurality of product qualities based on the determined maximum up-selling retailer price associated with each of the product qualities and a third objective function; computing up-selling profit based on the determined up-selling order-up-to levels based on the third objective function; selecting a profitable scenario from the cross-selling scenario, the down-selling scenario and the up-selling scenario, based on the computed cross-selling profit, the down-selling profit, and the up-selling profit; and outputting prices and order-up-to levels associated with the selected profitable scenario, wherein the maximum cross-selling retailer price is determined using a formulation of general form, (p 1 c ,p 2 c )=(θ 1 ν 1 , θ 1 ν 2 ), wherein p denotes a price, ν denotes quality of the product, and θ represents the customer's sensitivity to the product quality.