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Joint pricing and inventory management under servitisation

Author

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  • Chao Xu
  • Yongrui Duan
  • Jiazhen Huo

Abstract

We analyse a problem involving the joint pricing of a product and associated service, together with the management of inventory under servitisation. For a finite planning horizon, the firm sells both a product and a product-centric service whose market size depends on the past sales of the product. At the beginning of each period, the firm simultaneously decides the price of the product, the price of the service, and the replenishment quantity. We prove that a modified base-stock list-price policy is optimal to this problem. In addition, we find that there is a trade-off between realising current profit from the product and stimulating demand to increase future profit, and that overlooking this trade-off results in overall loss of profit for the firm. Moreover, the optimal policy that takes the trade-off into account leads to a lower optimal product price compared with a myopic policy, and the optimal price increases as a function of the past sales of the product.

Suggested Citation

  • Chao Xu & Yongrui Duan & Jiazhen Huo, 2020. "Joint pricing and inventory management under servitisation," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 71(6), pages 893-909, June.
    • Handle: RePEc:taf:tjorxx:v:71:y:2020:i:6:p:893-909
    DOI: 10.1080/01605682.2019.1590510
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    Cited by:

    1. Ling Zhao & Jun Liu & Minghua Xiong & Anquan Zou, 2022. "Dual-Channel Retailer’s Multi-Period Inventory and Pricing Policy with the Quantity-Sales Mode," Sustainability, MDPI, vol. 14(18), pages 1-18, September.
    2. Ling Zhao & Anquan Zou & Pin Zhou, 2023. "E‐retailer's dynamic inventory and pricing policy with price‐protection services," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 490-501, January.

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