Optimal Ordering Strategy for Goods at Multiple Retail Prices under Simultaneous Sales

Abstract

To stimulate purchases from consumers, retailers nowadays use the multiple retail prices strategy (MRPS), i.e., selling the products at multiple prices simultaneously. The paper extends the current newsboy model and proposes an optimal ordering model for MRPS corresponding to uncertain consumer demands. The Lagrangian multiplier method is applied to solve the problem, and an algorithm for finding the approximate optimal total order quantity is designed. Numerical results show that MRPS is better than the single retail price strategy (SRPS). It further reveals that when there is an order quantity constraint, the retailer needs to control the number of retail prices; that is, retailer’s MRPS is affected by order quantity constraint; sensitivity analysis demonstrates that MRPS is also affected by the price discount coefficient in the case of no order quantity constraint while it is not affected by demand volatility. The research work provides some useful managerial inspirations for retailers.