A multi-period dynamic pricing and replenishment strategy for regularly consumed fresh produce

• Main Authors: Bautista, Bea Rosario R., Gan, Bryan Spencer C., Yao, Jenny Lyn H.
• Format: text
• Language: English
• Published: Animo Repository 2012
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/12128
• Institution: De La Salle University

Fresh produce are characterized by their usefulness over a limited period of time, these items have a deteriorating factor should be considered in the demand for the product. Research literature review of over 70 articles in inventory management, pricing management and demand management of fresh produce has revealed a main gap of research when it comes to the joint pricing and inventory replenishment of fresh produce. Studies have not considered a multi-period model where the remaining inventory of each batch, deterioration rate per batch, and buying preferences of consumers are accounted from the previous period of sale to the subsequent periods until the particular batch of fresh produce spoils. A more desirable model for a product that is always available, regularly consumed, and with a demand that relies on the quality deterioration is needed to optimize profit for food retailers. Hence, this study focuses on a multi-period dynamic pricing and replenishment strategy for regularly consumed fresh produce that will also let the consumers decide strategically in terms of buying these kinds of product. A Mix Integer Non-linear programming operations research model is developed using GAMS Software with the objective function of maximizing profit. The model parameters are deterioration rate, demand, and customer willingness to buy, with the decisions variable of order quantity and pricing for the fresh produce. Cost functions such as ordering cost, unit cost, holding costs, and spoilage costs are also included in the equation for the objective function. Results of the model show that the optimal product quality for the particular batch will increase the demand and subsequently increases the profitability. In line with this, the purchasing behavior of consumers when having multiple products with different prices of the fresh produce will also increase the profitability. It was found out that the deterioration rate has an inverse relationship to profitability while demand and customer willingness to buy has a direct relationship with profitability. The order quantity has an inverse relationship to deterioration rate and a direct relationship to the demand.