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A joint dynamic pricing and advertising model of perishable products

Author

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  • Lin Feng

    (Institute of Systems Engineering, Tianjin University, Tianjin, China)

  • Jianxiong Zhang

    (1] Institute of Systems Engineering, Tianjin University, Tianjin, China[2] School of Management, The University of Texas at Dallas, Richardson, TX, USA)

  • Wansheng Tang

    (Institute of Systems Engineering, Tianjin University, Tianjin, China)

Abstract

Advertising and dynamic pricing play key roles in maximizing profit of a firm. In this paper a joint dynamic pricing and advertising problem for perishable products is investigated, where the time-varying demand rate is decreasing in sales price and increasing in goodwill. A dynamic optimization model is proposed to maximize total profit by setting a joint pricing and advertising policy under the constraint of a limited advertising capacity. By solving the dynamic optimization problem on the basis of Pontryagin’s maximum principle, the analytical solutions of the optimal joint dynamic pricing and advertising policy are obtained. Additionally, to highlight the advantage of the joint dynamic strategy, the case of the optimal advertising with static pricing policy is considered. Numerical examples are presented to illustrate the validness of the theoretical results, and some managerial implications for the pricing and advertising of the perishable products are provided.

Suggested Citation

  • Lin Feng & Jianxiong Zhang & Wansheng Tang, 2015. "A joint dynamic pricing and advertising model of perishable products," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 66(8), pages 1341-1351, August.
    • Handle: RePEc:pal:jorsoc:v:66:y:2015:i:8:p:1341-1351
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    Cited by:

    1. Chenavaz, Régis Y. & Feichtinger, Gustav & Hartl, Richard F. & Kort, Peter M., 2020. "Modeling the impact of product quality on dynamic pricing and advertising policies," European Journal of Operational Research, Elsevier, vol. 284(3), pages 990-1001.
    2. Schlosser, Rainer, 2017. "Stochastic dynamic pricing and advertising in isoelastic oligopoly models," European Journal of Operational Research, Elsevier, vol. 259(3), pages 1144-1155.
    3. Rubi Das & Abhijit Barman & Pijus Kanti De, 2022. "Integration of pricing and inventory decisions of deteriorating item in a decentralized supply chain: a Stackelberg-game approach," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 13(1), pages 479-493, February.
    4. Chernonog, Tatyana, 2020. "Inventory and marketing policy in a supply chain of a perishable product," International Journal of Production Economics, Elsevier, vol. 219(C), pages 259-274.
    5. Peter Seele & Claus Dierksmeier & Reto Hofstetter & Mario D. Schultz, 2021. "Mapping the Ethicality of Algorithmic Pricing: A Review of Dynamic and Personalized Pricing," Journal of Business Ethics, Springer, vol. 170(4), pages 697-719, May.

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