Dynamic pricing for fashion goods with partial backlogging

Abstract

In today’s very competitive business environment, one way that companies endeavour to cut their costs is by reducing inventory. In addition to the use of inventory management, retailers of fashion goods usually employ dynamic pricing to influence market demand, such as non-periodic clearance sales or markdowns to increase sales volume and deplete stocks of goods. This paper deals with the specific demand style of fashion goods under the condition in which partial backlogging is allowed and the number of replenishments is constrained in order to fit in the real world situation of limited supply. The optimal replenishment quantities and the corresponding intervals are obtained with consideration of customers’ reserve prices and their influence on demand. In addition, discrete dynamic pricing is considered to frequently change the product prices to meet the customer requirements in different periods and to avoid high inventory holding costs from unsold products. A numerical example is used to validate the feasibility and effectiveness of the proposed approach, and sensitivity analyses are performed to investigate the important factors that influence the replenishment cycle and profit.

Keywords:

• fashion goods
• dynamic pricing
• reservation price