Determining Optimal Discount Policies in B2B Relationships

Viktoryia Buhayenko, Erik van Eikenhorst

Abstract

This research studies which discounts a supplier needs to offer to give incentive to his customers to change their order patterns in a way that minimizes the supplier's total cost. Savings for the supplier arise from reduction of set up and inventory costs. The problem of when and how much discount to offer is not so often addressed in the literature. This approach is very different from the yield management in the fact that if the price changes in one period it will affect the demand in other periods. Two heuristic algorithms have been developed for a one-item non-restricted case with multiple customers. The numerical example shows that although the demand doesn’t change and the revenue of the supplier decreases because of the discounts offered, the supplier gets higher profit.

References

  1. Banerjee, A. (1986). On a quantity discount pricing model to increase vendor profits. Management Science, 32(11):1513-1517.
  2. Benton, W. C. and Park, S. (1996). A classification of literature on determining the lot size under quantity discounts. European Journal of Operational Research, 92:219-238.
  3. Bolton, R. N., Shankar, V., and Montoya, D. Y. (2010). Recent Trends and Emerging Practices in Retailer Pricing, pages 301-318. Springer, Berlin Heidelberg.
  4. Busher, U. and Lindner, G. (2004). Ensuring feasibility in 'a generalized quantity discount pricing model to increase supplier's profits'. Journal of the Operational Research Society, 55(6):667-670.
  5. Chen, R. R. and Robinson, L. W. (2012). Optimal multiplebreakpoint quantity discount schedules for customers with heterogeneous demand: All-unit or incremental? IEE Transactions, 44:199-214.
  6. Crowther, J. F. (1964). Rationale for quantity discounts. Harvard Business Review, 42:21-27.
  7. Eppen, G. D. and Kipp, M. R. (1987). Solving multi-item capacitated lot-sizing problems using variable redefinition. Operations Research, 35(6):832-848.
  8. Lal, R. and Staelin, R. (1984). An approach for developing an optimal quantity discount pricing policy. Management Science, 30:1524-1539.
  9. Lee, H. L. and Rosenblatt, M. J. (1986). A generalized quantity discount pricing model to increase supplier's profits. Management Science, 32:1177-1185.
  10. Levy, D., Bergen, M., Dutta, S., and Venable, R. (1997). The magnitude of menue costs: Direct evidence from large US supermarket chains. The Quaterly Journal of Economics, 112:1177-1185.
  11. Mauri, A. G. (2007). Yield management and perceptions of fairness in the hotel business. International Review of Economics, 30:720-726.
  12. Monahan, J. P. (1984). A quantity discount pricing model to increase vendor profits. Management Science, 30:720-726.
  13. Rosenblatt, M. J. and Lee, H. L. (1985). Improving profitability with quantity discounts under fixed demand. IEE Transactions, 17:388-394.
  14. Whitin, T. M. and Wagner, H. M. (1958). Dynamic version of the economic lot size model. Management Science, 54:89-96.
Download


Paper Citation


in Harvard Style

Buhayenko V. and van Eikenhorst E. (2014). Determining Optimal Discount Policies in B2B Relationships . In Doctoral Consortium - DCORES, (ICORES 2014) ISBN Not Available, pages 3-9


in Bibtex Style

@conference{dcores14,
author={Viktoryia Buhayenko and Erik van Eikenhorst},
title={Determining Optimal Discount Policies in B2B Relationships},
booktitle={Doctoral Consortium - DCORES, (ICORES 2014)},
year={2014},
pages={3-9},
publisher={SciTePress},
organization={INSTICC},
doi={},
isbn={Not Available},
}


in EndNote Style

TY - CONF
JO - Doctoral Consortium - DCORES, (ICORES 2014)
TI - Determining Optimal Discount Policies in B2B Relationships
SN - Not Available
AU - Buhayenko V.
AU - van Eikenhorst E.
PY - 2014
SP - 3
EP - 9
DO -