Advertising and pricing strategies of an inventory model with product freshness-related demand and expiration date-related deterioration

Abstract

Perishable products in Europe, the United States, and Canada typically have expiration dates or maximum lifetimes assigned to them. As these products approach their predetermined lifetimes , there is a gradual increase in the rate of decay, leading to a reduction in their freshness. To examine the impact of these two distinct attributes on a perishable product with a predetermined expiration date, we introduce two inventory models that utilize a demand function incorporating a linearly decreasing price dependence and a nonlinear increase that is influenced by advertising. These models consist of: (i) a zero-ending stock scenario and (ii) a partially backlogged shortage situation. Under certain conditions, the optimal cycle length for the stock zero-ending model and the optimal period with positive inventory for the model with shortages are obtained. The frequency of advertisement is a discrete and integer decision variable, we devise two algorithms for both models to determine the optimal frequency of advertisement that maximizes the profit. Finally, we suggest some strategies in order to increase the profit by studying marginal insights from a sensitivity analysis. It is recommended that the manager focuses on creating more impactful advertisements that are affordable to promote the product’s information through popular media channels.

Keywords

• Maximum lifetime
• Deterioration
• Freshness
• Advertisement
• Price-dependent demand
• Partial backlogging