The Determination of Price Discount in Pricing and Inventory Control of Perishable Goods: The Role of Time and Price Demand

Determining the appropriate inventory control policies and product prices is considered as an important dimension in the competitive markets of perishable products. The customers’ willingness to pay for perishable product declines as the product’s expiry date is approaching. In this paper, we considered the price discount in pricing model as an alternative approach to influence the consumers’ purchase decision. The model simultaneously determines the optimal values of selling price, discount time, and replenishment schedule so that the total profit is maximized. However, since the demand increases during the discount interval process, different demand rate functions, i.e. the functions of price and time are used in the model. At first, we model the problem without discount and its solution shows an impossible result in reality because the replenishment time is very short. But then, by including discount in the model, more products are sold and thus the profit increases. Finally, we solved two numerical examples used an iterative algorithm by performing a sensitivity analysis of the model parameters. We discussed the specific managerial insights of the study as well.