DISCOUNT PRICING POLICY WITH STOCHASTIC DEMAND AND PRESERVATION TECHNOLOGY FOR DETERIORATING ITEMS

Managing inventory for deteriorating items presents significant challenges, especially in environments where demand is stochastic and price-sensitive. Retailers face the dual pressure of minimizing losses from product deterioration while ensuring sufficient stock availability to meet customer demand. Additionally, backlogged shortages, if not managed strategically, can erode customer satisfaction and profitability. These complexities are further compounded by the need to strike a balance between promotional efforts, preservation investments, and pricing strategies to remain competitive in dynamic markets. To address these challenges, this study develops a comprehensive mathematical model aimed at optimizing replenishment strategies for deteriorating items. The model integrates preservation technologies and strategic price discounts to enhance product demand while accounting for the intricate relationship between market potential, stock levels, promotional efforts, and selling prices. The objective is to determine optimal pricing policies, order quantities, promotional expenditures, preservation costs, and schedules for shortages and replenishment, ultimately maximizing total profit per unit time. The findings reveal that total profit per unit time is concave concerning price, shortage duration, and inventory holding period. Numerical analyses demonstrate the efficacy of preservation technologies in mitigating deterioration rates, enabling retailers to adopt competitive pricing and stimulate sales. Additionally, the demand pattern index is shown to significantly influence inventory policies, while promotional campaigns play a critical role in augmenting product sales. Quantity discounts, tied to demand and order volumes, are identified as effective tools for reducing procurement costs and enhancing retailer profitability. These insights highlight the strategic importance of investing in preservation technologies, adopting dynamic pricing strategies, and implementing targeted promotional campaigns. Together, these approaches provide a robust framework for optimizing inventory management, increasing sales, and maximizing profitability in highly competitive markets.