TY - JOUR
T1 - A pricing model for clearing end-of-season retail inventory
AU - Gupta, Diwakar
AU - Hill, Arthur V.
AU - Bouzdine-Chameeva, Tatiana
PY - 2006/4/16
Y1 - 2006/4/16
N2 - The problem of setting prices for clearing retail inventories of fashion goods is a difficult task that is further exacerbated by the fact that markdowns enacted near the end of the selling season have a smaller impact on demand. In this article, we present discrete-time models for setting clearance prices in such an environment. When demand is deterministic, we compute optimal prices and show that decreasing reservation prices lead to declining optimal prices. When demand is stochastic and arbitrarily correlated across planning periods, we obtain bounds on the optimal expected revenue and on optimal prices. We also develop a heuristic procedure for finding near-optimal prices and test its accuracy through numerical experiments. These experiments reveal new insights for practitioners. For example, the penalty for choosing clearance price once and keeping it unchanged for the remainder of the selling season is found to be small when either the mean reservation prices do not change appreciably over time or when they drop sharply after the first period.
AB - The problem of setting prices for clearing retail inventories of fashion goods is a difficult task that is further exacerbated by the fact that markdowns enacted near the end of the selling season have a smaller impact on demand. In this article, we present discrete-time models for setting clearance prices in such an environment. When demand is deterministic, we compute optimal prices and show that decreasing reservation prices lead to declining optimal prices. When demand is stochastic and arbitrarily correlated across planning periods, we obtain bounds on the optimal expected revenue and on optimal prices. We also develop a heuristic procedure for finding near-optimal prices and test its accuracy through numerical experiments. These experiments reveal new insights for practitioners. For example, the penalty for choosing clearance price once and keeping it unchanged for the remainder of the selling season is found to be small when either the mean reservation prices do not change appreciably over time or when they drop sharply after the first period.
KW - Inventory
KW - Pricing
KW - Retailing
UR - http://www.scopus.com/inward/record.url?scp=26844520831&partnerID=8YFLogxK
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U2 - 10.1016/j.ejor.2004.07.048
DO - 10.1016/j.ejor.2004.07.048
M3 - Article
AN - SCOPUS:26844520831
SN - 0377-2217
VL - 170
SP - 518
EP - 540
JO - European Journal of Operational Research
JF - European Journal of Operational Research
IS - 2
ER -