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Economic Production Quantity (EPQ) Inventory Model for a Deteriorating Item with a Two-Level Trade Credit Policy and Allowable Shortages Read chapter Read first chapter

2020 | OriginalPaper | Chapter

5. Dynamic Pricing, Advertisement Investment and Replenishment Model for Deteriorating Items

Authors : Chetansinh R. Vaghela, Nita H. Shah

Published in: Optimization and Inventory Management

Publisher: Springer Singapore

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Abstract

In practice, it is commonly observed that the quality and price of items are two important factors for customers to choose a product. The profit of a firm is greatly affected by these two factors, especially when their inventory has deteriorating items. Also, it is commonly observed that the product demand increases due to promotional efforts like advertisement through digital media, newspaper, etc. Thus, the spending on commercial promotion is a very crucial decision. This paper considers a replenishment model for perishable items with investment on promotion and retail price-dependent demand with a budget constraint. The deterioration rate is considered constant. An optimization problem is formulated in order to provide a pricing, promotional spending and replenishment policy, which maximize the total profit. Using Pontryagin’s maximum principle, the optimal advertisement investment is obtained for a given retail price and cycle time. The closed form of the inventory level is obtained by solving the respective differential equation of inventory. The model is validated by a numerical example with hypothetical parameters in result section. The results show that the model is pretty stable and the concavity is proven graphically. The sensitivity analysis is performed in discussion section. The sensitivity analysis about key inventory parameters reveals some important managerial insights. Also, the future scope is given in conclusion section, which gives a brief idea about possible extensions of this model.

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previous chapter Inventory Modelling of Deteriorating Item and Preservation Technology with Advance Payment Scheme Under Quadratic Demand
next chapter A Production Reliable Model for Imperfect Items with Random Machine Breakdown Under Learning and Forgetting
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Metadata
Title
Dynamic Pricing, Advertisement Investment and Replenishment Model for Deteriorating Items
Authors
Chetansinh R. Vaghela
Nita H. Shah
Copyright Year
2020
Publisher
Springer Singapore
Book
Optimization and Inventory Management

Print ISBN: 978-981-13-9697-7

Electronic ISBN: 978-981-13-9698-4

Copyright Year: 2020

DOI
https://doi.org/10.1007/978-981-13-9698-4_5