Optimal Pricing Strategy for Quantity Discount Promotions

摘要

Retailers use quantity discounts as sales promotion instruments in many product categories. In addition to the regular package size, a larger package size of a brand is offered for only a limited time. This paper addresses the problem of determining the optimal discount (for example, "X + 1 free") in which the retailer offers a quantity discount if a minimum quantity of a particular stock-keeping unit is purchased. A theoretical model is constructed that takes into account within-brand and cross-brand effects (for example, due to brand-switching), cross-period effects (for example, due to stockpiling) and category-expansion effects (for example, due to increased consumption). From a retailer's point of view, we determine the optimal quantity discount based on the assumption that the duration of the promotion has been fixed at the beginning of the planning period. We derive optimal policies for retailers and use a comparative static analysis to identify the dependence of quantity discounts upon the key promotion effects of the model. Additionally, we derive meaningful managerial implications for retailers.