Beyond Plain Vanilla: Modeling Joint Product Assortment and Pricing Decisions

Joint pricing and inventory decisions for substitutable and perishable products under demand uncertainty

When Demand Projections are Too Optimistic: A Structural Model of Product Line and Pricing Decisions

Product Quality, Service and Pricing

Product quality and pricing, as the important competitive tools, play a key role in attracting consumers. In a supply chain, the decisions on product quality and pricing are usually interlinked and would influence the cooperation relation between the members, especially when they are fairness-concerned and have different bargaining power. However, linking the quality and pricing decisions to the decision-makers’ behavioral factors such as fairness concern draws a little attention in the literature of supply chain management. This paper incorporates the members’ fairness preference and bargaining power into the product quality and pricing decisions in a two-echelon supply chain, where the supplier offers core components with a certain quality level to the downstream manufacturer, who subsequently sells the final products in the end market. Both the supplier and the manufacturer are assumed to be fairness-concerned by adopting Nash bargaining solutions as their fairness reference points. We use game-theoretic models to analyze the equilibrium product quality and pricing strategies under the setting of integrated and decentralized supply chain, respectively. Detailed comparisons and sensitivity analysis are further conducted to examine the impacts of members’ strengths of fairness concern, bargaining power, and decision structure on their equilibrium product quality and pricing strategies and corresponding payoffs.

Towards value-based pricing—An integrative framework for decision making

ABSTRACTI identify the effects of financial constraints on firms' product pricing decisions, using insurance groups containing both life and property & casualty (P&C) divisions. Following P&C divisions' losses, life divisions change prices in a manner that can generate more immediate financial resources: premiums fall (rise) for life policies that immediately increase (decrease) insurers' financial resources. Premiums change more in groups that are more constrained. Life divisions increase transfers to P&C divisions, suggesting P&C divisions' shocks are transmitted to life divisions. Results hold when instrumenting for P&C divisions' losses with exposure to unusual weather damages, implying that the effects are causal.

This paper considers the pricing decisions of substitutable products which are produced by duopolistic manufacturers respectively and then sold by one common retailer to the consumers. Both the manufacturing cost and the customer demand for each product are characterized as fuzzy variables. Six expected value models are developed to explore the effects of the duopolistic manufacturers’ three pricing strategies (i.e. Bertrand competition, Stackelberg competition, cooperation) and vertical competition between the manufacturers and the retailer on the optimal pricing decisions and channel profit-split of a two echelon supply chain, and the corresponding analytical solutions are derived. Finally, a numerical example is given to illustrate the effectiveness of the proposed models, and to gain additional managerial insights.

Product bundling and pricing strategies can be effectively deployed to reduce the firm’s fixed complexity costs in product development, sourcing, manufacturing and distribution logistics and to raise consumer prices. In addition, the introduction of new and innovative product features may allow firms to raise both expected sales and consumer surplus, consumer satisfaction respectively, measured by the difference between the customers reservation price and the respective market price of the product. In general, when customer segments are very heterogeneous, then a mixed bundling or mass-customization strategy may dominate a free-choice or pure bundling strategy in terms of expected sales. This is due to the fact that the structure of micro-markets can be directly exploited. Contrary, the two other strategies can be viewed as mass production strategies, since they can not effectively exploit the willingness-to-pay of attractive micro-markets. Development of new and innovative product features can create a real option value for the firm, since it enables it to capture additional markets or market share. Utilizing a real options approach for (incremental) product development, we show that the firm’s downside risk can be curtailed due to the option to abandon the project. In general, the benefit of introducing new product features must be traded off against the possibility of market reactions by competitors and the development costs and improvement costs prior to market launch.In this paper, we analyze the firm’s option to introduce a mixed product bundle for mass customization as opposed to a free-choice or pure product bundle policy for mass production. Moreover, the introduction of the new product can be abandoned contingent on both market and project information. In addition, the firm has the option to improve the project periodically, i.e., take corrective action in order to influence the project’s expected payoffs. We show that the option value of the project under consideration can be significantly increased this way and that the decision on the optimal product policy and pricing strategy should be postponed until (close to) the time of market entry.

The article offers an insight into category management (CM) practices and their relative impact on customer satisfaction within Kuwaiti grocery retail market. A Category Management Key Variables Model incorporating six variables (that is, product assortment, product pricing, product presentation, product promotion, product availability and customer service) was tested in a Kuwaiti category managed superstore. Descriptive research approach based on quantitative research design involving questionnaire-based survey was used to collect data from 309 Kuwaiti customers. Findings indicated that customer satisfaction was largely driven by product assortment, product availability and excellence in customer service. Other CM variables (that is, product price, product presentation and product promotion) had insignificant impact on customer satisfaction.

Product costing in service organizations

Many enterprises that participate in dynamic markets need to make product pricing and inventory resource utilization decisions in real time. We describe a family of statistical models that addresses these needs by combining characterization of the economic environment with the ability to predict future economic conditions to make tactical (short-term) decisions, such as product pricing, and strategic (long-term) decisions, such as level of finished goods inventories. Our models characterize economic conditions, called economic regimes, in the form of recurrent statistical patterns that have clear qualitative interpretations. We show how these models can be used to predict prices, price trends, and the probability of receiving a customer order at a given price. These “regime” models are developed using statistical analysis of historical data and are used in real time to characterize observed market conditions and predict the evolution of market conditions over multiple time scales. We evaluate our models using a testbed derived from the Trading Agent Competition for Supply Chain Management, a supply chain environment characterized by competitive procurement, sales markets, and dynamic pricing. We show how regime models can be used to inform both short-term pricing decisions and long-term resource allocation decisions. Results show that our method outperforms more traditional short- and long-term predictive modeling approaches.

PurposeExternal factors such as improper handling, extreme weather and insect attacks affect product quality. It is most obvious in fruit products which have a high deterioration rate. Moreover, decaying fruits will increase the deteriorating of other good ones. The purpose of this study is to derive the optimal pricing and replenishment decisions for agricultural products considering the effect of external factors that induce deterioration.Design/methodology/approachIn this paper, the study investigates ways to reduce the product deterioration rate by separating the near defective items from the other good products and accelerating the quick sales of the near defective items at a discounted price. The objective is to maximize the total profit by optimizing the selling price and the replenishment cycles. Two scenarios are investigated. In the first scenario, the retailer offers a selling price discount for near defective products to stimulate customer demand. In the second scenario, the retailer does not offer such discounts.FindingsAn algorithm to solve the model is derived. Further, numerical examples are developed to compare the total profit for the two scenarios. Theoretical derivations and graphical results show the concavity of the profit function. Finally, the sensitivity analysis shows that the total profit of the discount model is higher.Originality/valueThis study contributes to a new pricing and inventory decision model. The research provides insights to retailers on making optimal pricing and replenishment decisions for non-instantaneous deterioration items, as well as reducing the external factors that influence higher deterioration rate through separating good products from the near defective ones which are sold at a discount to induce the sale.

Purpose: The general objective of this paper was to evaluate the significance of EU designations such as Protected Designation of Origin (PDO), Protected Geographical Indication (PGI) and Traditional Speciality Guaranteed (TSG) in the food purchasing decisions made by consumers. Specific objectives include: determining familiarity with products bearing EU designations, identifying factors affecting the purchase, determining the type of most frequently purchased products and identifying their purchase locations. Design/Methodology/Approach: The evaluation was carried out using PAPI and CAWI surveys (survey questionnaire) . The surveys were carried out in 2016 among 1.364 students from four countries: Poland, Lithuania, Slovakia and Ukraine. Findings: The results of the surveys point to a relatively small significance of EU designations in the purchasing decisions made by young consumers of food products. The surveys made it possible to identify the most important determinants of the choice of food products, including: product price, freshness and best before date. Analysing the behaviours of buyers from respective countries it can be observed that the evaluations of the significance of factors determining the choice of a product are not much different, which can be explained by progressing globalization and unification of consumer behaviours. In addition, it can be noted that the surveyed buyers are not very fluent in differentiating between respective types of designations such as PDO, PGI and TSG. Practical Implications: The survey made it possible to evaluate the behaviour of young consumers on the food market to the extent of the choice of products with EU designations and to formulate recommendations for producers and sellers as well as identify the directions of further research. Originality/Value: The added value of this paper is cross-sectional analysis of multiple factors shaping decisions on the choice of EU-certified food products by young consumers using the example of selected EU member states in comparison to a non-EU country – Ukraine.

We consider the interdependent decisions on assortment, inventory and pricing of substitutable products that are differentiated by some primary and secondary attributes captured by a nested logit consumer choice. We examine a newsvendor-type setting with several products competing for demand over a single selling season. We assume that all products have equal profit margins. The demand has a multiplicative-additive structure where both variance and coefficient of variation depend on the common profit margin, which adds to the model applicability at the expense of tractability. Under a Taylor series-type approximation, we show that the expected profit is unimodal in the common margin of products in a given assortment. Then, we compare the optimal profit margin to the case under ample inventory, which allows understanding the effect of inventory on pricing. We also study the optimal assortment problem under exogenous pricing. We show that the classic result on the optimality of popular sets holds under tight approximations of the profit function. We finally propose a heuristic for jointly deciding on assortment, pricing, and inventory decisions, which assumes equal profit margins of products, and exploit popular sets only. Our detailed numerical study shows that this equal-margin heuristic produces high quality solutions.

We study a manufacturer’s production quantity and pricing decisions when the manufacturer has an opportunity to sell surplus inventory through a salvage channel. Before sales begin, the manufacturer determines the production quantity without knowing customer demand. After demand is realised, the manufacturer first satisfies the demand through primary channel while charging a fixed price or adjusting price to maximise profit. At the end of the selling season, the manufacturer resells surplus inventory through the salvage channel, which can be either integrated with or independent of the manufacturer. The manufacturer’s optimal production quantity and expected profit are investigated under different salvage channel structures. We show that the salvage channel improves the manufacturer’s profitability as well as the availability of the product to potential customers through both primary and salvage channels.