×

Manufacturer’s pricing strategy and return policy for a single-period commodity. (English) Zbl 1009.90005

Summary: This paper presents a model for designing the pricing and return-credit strategy for a monopolistic manufacturer of single-period commodities. That is, given the unit manufacturing cost and the unit retail sale price, the manufacturer determines: (i) the unit price \(C\) to be charged against the retailer; and (ii) the unit credit \(V\) to be given to the retailer for units returned. While the manufacturer is allowed to set \(C\) and \(V\), the order quantity \(Q\) is set by the retailer in response to the manufacturer’s \(C\) and \(V\). Among the unexpected findings derived from our model are: (i) unless an external force supports the retailer, otherwise the manufacturer can usually design a \((C,V)\)-scheme that gives himself the lion’s share of the profit; (ii) depending on the risk attitudes of the manufacturer and the retailer, the optimal return policy can range from “no returns allowed” to “unlimited returns with full credit”; (iii) instead of losing his profit share to the retailer, a return-credits agreement can often be manipulated by a shrewd manufacturer to increase his profit.

MSC:

90B05 Inventory, storage, reservoirs
90B30 Production models
PDFBibTeX XMLCite
Full Text: DOI

References:

[2] Fisher, M.; Raman, A., Reducing the cost of demand uncertainty through accurate response to early sales, Operations Research, 44, 87-99 (1996) · Zbl 0847.90065
[3] Flath, D.; Nariu, T., Returns policy in the Japanese marketing system, Journal of The Japanese and International Economies, 3, 49-63 (1989)
[5] Iyer, A. V.; Bergen, M. E., Quick response in manufacturer-retailer channels, Management Science, 43, 4, 559-570 (1997) · Zbl 0888.90046
[7] Jeuland, A. P.; Shugan, S. M., Managing channel profits, Marketing Science, 2, 239-272 (1983)
[8] Khouja, M., The newsboy problem under progressive multiple discounts, European Journal of Operational Research, 84, 458-466 (1995) · Zbl 0909.90134
[9] Kouvelis, P.; Gutierrez, G., The newsvendor problem in a global market: Optimal centralized and decentralized control policies for a two-market stochastic inventory system, Management Science, 43, 571-585 (1997) · Zbl 0890.90083
[10] Lau, H. S., The newsboy problem under alternative optimization objectives, Journal of the Operational Research Society, 31, 525-535 (1980) · Zbl 0426.90023
[11] Lau, H. S.; Lau, A. H.L., The newsstand problem: A capacitated multiple-product single-period inventory problem, European Journal of Operational Research, 94, 29-42 (1996) · Zbl 0929.90003
[13] Monahan, J. P., A quantity discount pricing model to increase vendor profits, Management Science, 30, 720-726 (1984)
[14] Nelder, J. A.; Mead, R., A simplex method for function minimization, Computer Journal, 7, 308-313 (1965) · Zbl 0229.65053
[15] Pashigian, B. P., Demand uncertainty and sales: A study of fashion and markdown pricing, American Economic Review, 78, 5, 936-953 (1988)
[16] Pashigian, B. P.; Bowen, B.; Gould, E., Fashion, styling, and the within-season decline in automobile prices, Journal of Law and Economics, 38, 2, 281-309 (1995)
[17] Pasternack, B. A., Optimal pricing and return policies for perishable commodities, Marketing Science, 4, 2, 166-176 (1985)
[18] Razzano, R., FTC decision may affect price-break, take-backs, Chain Store Age Executive, 65, 2, 18-20 (1989)
[19] Winkler, R. L.; Roodman, G. M.; Britney, R. R., The determination of partial moments, Management Science, 19, 3, 290-296 (1972) · Zbl 0256.62012
[20] Zusman, P.; Etgar, M., The marketing channel as an equilibrium set of contracts, Management Science, 27, 284-302 (1981)
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. In some cases that data have been complemented/enhanced by data from zbMATH Open. This attempts to reflect the references listed in the original paper as accurately as possible without claiming completeness or a perfect matching.