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Joint dynamic pricing and investment strategy for perishable foods with price-quality dependent demand

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Abstract

The food quality has always played an important role in the retail process since it has been considered as a direct factor to influence a consumer’s purchase decision. In this paper, we formulate an inventory model for perishable foods, in which the demand depends on the price and quality that decays continuously. The objective is to determine a joint dynamic pricing and preservation technology investment strategy while maximizing the total profit from selling a given initial inventory of foods. We first prove the existence of an optimal solution based on Filippov–Cesari theorem. Then, we obtain all the candidates and provide the conditions that make a certain candidate be an optimal solution according to Pontryagin’s maximum principle. Next, we present an effective algorithm to search for the optimal strategy. Finally, two numerical examples are employed to illustrate the solution procedure and the results, followed by sensitivity analysis and managerial insights.

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Acknowledgments

This work was supported by National Natural Foundation of China Nos. 61004015, 71371133, and the Program for New Century Excellent Talents in Universities of China No. NCET-11-0377.

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Authors and Affiliations

  1. College of Management and Economics, Tianjin University, Tianjin, 300072, China

    Guowei Liu, Jianxiong Zhang & Wansheng Tang

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  1. Guowei Liu
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  2. Jianxiong Zhang
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  3. Wansheng Tang
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Correspondence to Jianxiong Zhang.

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Liu, G., Zhang, J. & Tang, W. Joint dynamic pricing and investment strategy for perishable foods with price-quality dependent demand. Ann Oper Res 226, 397–416 (2015). https://doi.org/10.1007/s10479-014-1671-x

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