Ordering policies under one time only discount and price sensitive demand

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Abstract

Purchase price reductions, even on a one-time-only basis, allow retailers the opportunity to lower their own selling prices, albeit temporarily, in an effort to increase sales. This results in not only additional revenues but also in extra inventory costs. The model presented in this paper examines such a cost/revenue tradeoff, through simultaneous determination of the most profitable: (i) stock level to be purchased by the retailer; (ii) discount level to be passed on to the customers; (iii) stock level qualifying for the retailer's discount; and (iv) time to initiate the discount. Numerical examples are included throughout to illustrate the main features of the model.

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