Optimal control policy to production and inventory system with promotion effort dependent demand in segmented market

Abstract

Increased competition in market leads to the interaction between marketing and production of a firm in segmented market. This paper considers the problem of finding an optimal promotion and production strategy, where the consumer demand rate depends on differentiated and mass promotion efforts. Differentiated promotions can reach each segment independently and mass promotion reaches it with a fixed segmentspectrum. Under reasonable conditions, two optimal control problems are formulated. The first one considers a single source inventory and multi-segmented demand problem. In the second, a multi-segmented inventory and demand problem is considered, where it is assumed that the firm chooses an inventory directed to each segment. The solution to both problems is obtained by using Pontryagin’s maximum principle. Numerical examples are provided to illustrate the applicability of proposed models. The discretized version of the problem is formulated and solved on some numeric data.

Keywords

• inventory-production
• segmentation
• optimal control problem
• promotional efforts