Markdown pricing of perishable products with price and time-dependent demand, considering twice discount during the sales period – The case of Ofoq Kourosh Chain Stores

Perishable products suffer from spoilage and quality loss after a period, so their demand decreases. To raise the level of demand and reduce the cost due to product spoilage and increase in waste, a markdown policy is used. This paper aims to find the optimal amount of discount and the initial order amount so that the total profit is maximized. The discount is offered twice during the sales period; the first discount is provided before the onset of deterioration, when and attractiveness of the product for purchase decreases. The second one is given after the deterioration starts when product spoilage is visible.

Design/methodology/approach:

 After an extensive literature review, the initial mathematical model has been shaped and solved using an analytical approach. Considering experts' opinions, the internal validity of the proposed model has been checked and confirmed. Also, the concavity conditions of the objective function and the existence of the global optimal point of the model have been investigated. Then, the values ​​of parameters have been determined by experts and placed in the model. Finally, Ofoq Kourosh Chain Stores' original sales data have been collected as a case study and the model has been solved in MATLAB software.

In this paper, the amount of the initial order was determined. Then, the optimal amount of the discount was obtained to reach the maximum profit. In this paper, the authors’ observation indicated that using the markdown pricing strategy is more profitable than the fixed pricing strategy during the sales period. This result is the most important finding of the paper, which can be calculated during the sales period examined in the Ofoq Kourosh Chain Stores. It can help decision makers of the discount chain store to set better strategies for their fresh and dairy products.

Research limitations/implications: 

Choosing a demand function that takes into account all factors affecting demand; also, Considering the optimal discount times, corresponding to the optimal discount values ​​as decision variables, complicates the model. It should be mentioned that due to limitations in the IT infrastructure of the case study and our boundaries to get information from these brick-and-mortar chain stores, it is not possible to record data in short periods (hourly) and the warehouse inventory is only available daily.
Practical implications: Since one of the main goals of the institution is to obtain maximum profit, by applying the markdown pricing strategy on perishable products, due to the quality of perishable goods being proportional to their price from the customer's point of view, it is possible to encourage them to buy the product and increase their demand. Besides, it can reduce waste which also leads to the maximization of profit. It should be noted that with the implementation of the proposed model in Ofoq Kourosh Chain Stores, it is practically shown that its implementation can make an important contribution to increasing profits.

Social implications: 

The results of this research can be used to improve the sales of perishable products, seasonal products, and fashion goods and can increase the profitability of products and reduce waste. This is also possible for consumers to have access to fresh or seasonal products at various and lower prices with different income levels. Such changes can lead to greater equality in society.

Originality/value: 

The literature review shows that the inventory control models have discussed more optimal order amount and time and less about pricing strategies and price discounts, simultaneously. The subject that is less considered in the literature, to the best of the authors’ knowledge, is the determination of discount values ​​to maximize profit, which was considered in this paper.