Efficient Algorithms for the Dynamic Pricing Problem with Reference Price Effect

Chen, Xin; Hu, Peng; Hu, Zhenyu

doi:10.1287/mnsc.2016.2554

Cited by 82 publications

(41 citation statements)

References 35 publications

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“…Dynamic pricing modelling is very strong tool in modern methods. In this modelling the demand at each period depends on past prices via reference prices with the current price (Chen et al, 2016).…”

Section: Methods Using Reference Pricesmentioning

confidence: 99%

Novel Method of Price Determination based on Reference Price

Schüller

Pekárek

Chlebovský

et al. 2018

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This paper deals with the issue of optimal price determination. Price determination is a matter of high importance in both the academic community and managerial practices. The aim of the paper is to present a novel method of price determination based on reference price. The method presented is inspired by a fuzzy sets graphical interpretation and provides an alternative approach to the standard product price determination problem. It uses the satisfaction of customers as well as product sellers to find the optimal price for particular market. The method is based on two fundamental steps. First the method of product perception for a single customer is developed and then the method for the whole market is derived. The individual changing trend of customers` willingness to pay at each price level constitutes the essence of the method presented. The application of the suggested method is presented via empirical data obtained from the snowboard market. The results have a direct impact on managerial decision-making of the seller in terms of pricing. The resultant price given by the analysis conducted through the suggested method allows sellers to maximize the revenues related to a particular product. Moreover if the seller's goal is not to maximize revenues, but to achieve maximal market share, the price should be the same as the optimal willingness to pay price. These conclusions are explicitly mentioned in order to demonstrate that the suggested approach allows the definition of custom objectives by the seller.

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Section: Methods Using Reference Pricesmentioning

confidence: 99%

Novel Method of Price Determination based on Reference Price

Schüller

Pekárek

Chlebovský

et al. 2018

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“…Solving the adjoint equation (19) with the transversality condition 3 ( ) = 0 by substituting (19) yields 3 = 1 e ( + ) + Δ 1 e + Δ 2 .…”

Section: Optimal Quality and Inventory Strategiesmentioning

confidence: 99%

“…Hardie et al [10] developed the notion of reference quality, a parallel concept to the reference price, and empirically demonstrated that the gap between observed quality and reference quality can significantly affect purchase probabilities. It is noteworthy that the reference price research has received widespread attention, such as pricing policies (see, e.g., [11][12][13][14][15][16][17][18][19]), cooperative pricing and inventory (see, e.g., [20][21][22][23]), cooperative pricing and preservation technology investment [24], cooperative advertising [25], and cooperative pricing and advertising [26]. These studies provide efficiency strategies to improve firms' profits by understanding the consumers' reference price effect.…”

Section: Introductionmentioning

confidence: 99%

Joint Quality Investment and Inventory Decisions for Perishable Items with Reference Quality Effect under the O2O Environment

Hou

2019

Journal of Control Science and Engineering

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Reference quality, as a benchmark against which the purchase quality of a product is judged, has an important impact on consumers’ purchase decision, especially perishable items. Thus, how to determine an appropriate quality investment and ordering strategies for perishable items to maximize retailers’ profit is an essential task. A joint dynamic quality investment and inventory replenishment problem for perishable items with consideration of reference quality effect is investigated, where the retailer sells its products using a combination of the offline and online stores, and the sales function is sensitive to products’ quality and consumers’ reference quality. The optimal control model is established to maximize the retailer’s total profit by making a joint quality and inventory strategy. The continuous time dynamic optimal quality investment and inventory replenishment strategies with reference quality effect are obtained by Pontryagin’s maximum principle. Numerical experiments are accounted for the key system parameters on the optimal strategies.

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“…Greenleaf [32] first analyzes the firm's pricing strategy with reference price effects and explains how the reference price effects affect the promotion decision of a firm during a period; it is concluded that firm's pricing decision when considering the reference price effects will increase the firm's profits. Some recent works explore how pricing strategies should account for the reference price effects, for example, see Kopalle et al [33]; Fibich et al [34,35]; Popescu and Wu [36]; Nasiry and Popescu [37]; Chen et al [38]; Hu et al [39]; Wang (2016) and the references therein. Arslan and Kachani [40] and Mazumdar et al [41] provide reviews of dynamic pricing model with reference price effects.…”

Section: Literature Reviewmentioning

confidence: 99%

“…The sales price per unit item has a greatest lower bound and a greatest upper bound with ≤ ≤ , which are independent of their period . The reference price of the next period (period + 1) depends on the reference price and sales price in the current period (period ), of which modeling by the evolution of the reference price is the exponential smoothing model [14,15,17,38,42,43], i.e.,…”

Section: Model Descriptionmentioning

confidence: 99%

Joint Pricing and Inventory Replenishment Decisions with Returns and Expediting under Reference Price Effects

Hou

2019

Mathematical Problems in Engineering

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This paper considers a single-item joint pricing and inventory replenishment problem under reference price effects in consecutive T periods. Demands in consecutive periods are sensitive to price and reference price with general demand distribution. At the end of each period, after the demand realization, a firm can return excess stocks to a supplier or place an expediting order to reduce the loss by shortage. Unfilled demands are fully backlogged. In order to maximize the total expected discounted profit with reference price effects the optimal pricing and inventory replenishment policies for regular order and the inventory adjustment decisions for returning/expediting are derived. The optimal replenishment policy for regular order is a base-stock policy, the optimal pricing policy is a base-stock-list-price policy, and the optimal policy for returning/expediting inventory adjustment follows a dual-threshold policy. Furthermore, the analysis of the operational impacts (from the perspective of adding returning/expediting and reference price effects, respectively) is researched. Numerical results also show that considering both returning/expediting and reference price effects is more profitable than considering only one of them.

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Efficient Algorithms for the Dynamic Pricing Problem with Reference Price Effect

Cited by 82 publications

References 35 publications

Novel Method of Price Determination based on Reference Price

Novel Method of Price Determination based on Reference Price

Joint Quality Investment and Inventory Decisions for Perishable Items with Reference Quality Effect under the O2O Environment

Joint Pricing and Inventory Replenishment Decisions with Returns and Expediting under Reference Price Effects

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