Pricing strategies for continuous replenishment perishable goods

Abstract

This thesis investigates the application of Dynamic Pricing strategies at a manufacturer of continuous replenishment perishable goods. I begin with a discussion of Dynamic Pricing models, and select a mixed integer programming formulation as most applicable to the available systems and data of the target company. Cost formulations are built through a detailed analysis of current cost allocations within the company and actual costs when available. Revenue and price elasticity models are built from existing formulations. The continuous functions are then discretized through piece-wise approximations and input into a mixed integer program using production and pricing as the decision variables. The results were not entirely conclusive as sensitivity around the base values, particularly the price elasticity value, can create very different price path solutions. Greater stability is achieved through tightening the price ranges, but the suggested policy of always charging the maximum allowable price is not practical within the company's existing policies. For actual implementation, a much more thorough understanding of the price elasticity mechanism would be required.