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Retailer's response to special sales: price discount vs. trade credit

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  • Arcelus, F. J.
  • Shah, Nita H.
  • Srinivasan, G.

Abstract

Given the increasing saliency of special offers as a sales promotion tool, this paper analyses the advantages and disadvantages of the two most common payment reduction schemes, namely a decrease in the purchase price and a delay in the payment of the merchandise. Following some of the latest empirical evidence in the sales promotion field, the model includes a price-dependent demand, where price incorporates the ability of the retailer to pass on some of the savings to the customers. The integration of both the purchasing and the sale implications of the vendor's offer on the retailer's profit forms an integral part of the model. A numerical example highlights the main features of the model.

Suggested Citation

  • Arcelus, F. J. & Shah, Nita H. & Srinivasan, G., 2001. "Retailer's response to special sales: price discount vs. trade credit," Omega, Elsevier, vol. 29(5), pages 417-428, October.
    • Handle: RePEc:eee:jomega:v:29:y:2001:i:5:p:417-428
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    Cited by:

    1. Ping Ruan & Yung-Fu Huang & Ming-Wei Weng, 2022. "Impact of COVID-19 on Supply Chains: A Hybrid Trade Credit Policy," Mathematics, MDPI, vol. 10(8), pages 1-22, April.
    2. Yiju Wang & Hengxia Gao & Wei Xing, 2018. "Optimal replenishment and stocking strategies for inventory mechanism with a dynamically stochastic short-term price discount," Journal of Global Optimization, Springer, vol. 70(1), pages 27-53, January.
    3. L-Y Ouyang & C-T Chang & J-T Teng, 2005. "An EOQ model for deteriorating items under trade credits," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 56(6), pages 719-726, June.
    4. Reinaldo Guerreiro & Beng Soo Ong & Ariovaldo dos Santos, 2004. "Bonus pack promotions:Perceptions of Controllers and CommercialManagers," Brazilian Business Review, Fucape Business School, vol. 1(2), pages 103-117, June.
    5. Ata Allah Taleizadeh & Hadi Samimi & Babak Mohammadi, 2015. "Joint replenishment policy with backordering and special sale," International Journal of Systems Science, Taylor & Francis Journals, vol. 46(7), pages 1172-1198, May.
    6. Taleizadeh, Ata Allah & Mohammadi, Babak & Cárdenas-Barrón, Leopoldo Eduardo & Samimi, Hadi, 2013. "An EOQ model for perishable product with special sale and shortage," International Journal of Production Economics, Elsevier, vol. 145(1), pages 318-338.
    7. Ramasesh, Ranga V., 2010. "Lot-sizing decisions under limited-time price incentives: A review," Omega, Elsevier, vol. 38(3-4), pages 118-135, June.
    8. Vandana, & Kaur, Arshinder, 2019. "Two-level trade credit with default risk in the supply chain under stochastic demand," Omega, Elsevier, vol. 88(C), pages 4-23.
    9. Zhang, Qinhong & Dong, Ming & Luo, Jianwen & Segerstedt, Anders, 2014. "Supply chain coordination with trade credit and quantity discount incorporating default risk," International Journal of Production Economics, Elsevier, vol. 153(C), pages 352-360.
    10. Lin, Chinho & Lin, Yihsu, 2007. "A cooperative inventory policy with deteriorating items for a two-echelon model," European Journal of Operational Research, Elsevier, vol. 178(1), pages 92-111, April.
    11. Taleizadeh, Ata Allah & Pentico, David W. & Aryanezhad, Mirbahador & Ghoreyshi, Seyed Mohammad, 2012. "An economic order quantity model with partial backordering and a special sale price," European Journal of Operational Research, Elsevier, vol. 221(3), pages 571-583.
    12. Nita H. Shah & Nidhi Raykundaliya, 2009. "Optimal Inventory Policies for Weibull Deterioration under Trade Credit in Declining Market," Indus Journal of Management & Social Science (IJMSS), Department of Business Administration, vol. 3(2), pages 11-20, December.
    13. Su, Yiqiang & Geunes, Joseph, 2012. "Price promotions, operations cost, and profit in a two-stage supply chain," Omega, Elsevier, vol. 40(6), pages 891-905.
    14. Mohini Kumari & T. P. M. Pakkala, 2016. "Inventory policy for deteriorating items under trade credit when time of payment is uncertain," OPSEARCH, Springer;Operational Research Society of India, vol. 53(1), pages 178-196, March.
    15. Karimi-Nasab, M. & Konstantaras, I., 2013. "An inventory control model with stochastic review interval and special sale offer," European Journal of Operational Research, Elsevier, vol. 227(1), pages 81-87.
    16. Chung, Kun-Jen & Liao, Jui-Jung, 2011. "The simplified solution algorithm for an integrated supplier-buyer inventory model with two-part trade credit in a supply chain system," European Journal of Operational Research, Elsevier, vol. 213(1), pages 156-165, August.
    17. Melis Teksan, Z. & Geunes, Joseph, 2016. "An EOQ model with price-dependent supply and demand," International Journal of Production Economics, Elsevier, vol. 178(C), pages 22-33.

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