A Study Of WTP-based Dynamic Pricingand Orderingstrategy For Retailer

Dynamic pricing and purchasing strategy is one of the most widelystudiedoperations research areas. An important area of the study is to forecastcustomer demand function. Traditional research takes the customer demand either asa combination of a linear function of the price and a random variable, or as thePoisson arrival process. Moreover, these studies are based on actual purchasingdataof customers to forecast the demand. However, there is still not much literature toforecast the customer demandfrom the perspective of customer behavior, especially inthe perspective of the customers’ willingness to pay.Customer’s demand function depends on the customer arrival rate and theprobability ofpurchase, which depends on whether the price is higher than thecustomers’ willingness to pay.We design an experiment that can simulate the realcustomer need and shopping environment, and use BDM method to induce thecustomers’ willingness to pay for Watson mineral water.The results show that customer’s willingness to pay followslognormaldistribution. At the same time, there is an obvious positive proportional linearrelationship between customer’s willingness to pay and the urgency of customerdemand, which provides a theoretical basis and data support for further in-depth studyto support retailers’decision-making.Through market investigation and data analysis,we can get the retailer’spurchasing variable costs, set-up cost and unit holding goods. Based on this setting,usingthe result of the customer behavior experiment, weanalyzea multi-perioddynamic pricing and procurement issues. The results show that under the basicparameters, the retailer’s optimal procurement strategy is to purchase in first week tomeet the demand of the first three weeks, and then from week four, make apurchasein every eight weeks. The optimal pricing strategy is, toraise the sales pricegradually in every procurement cycle.Through sensitivity analysisof the variable costs of procurement, the setup cost, unit holding cost, we can show that retailers should remainthe same optimal decisionas the above parameters within a certain range.Through the customer behaviorexperiment, weget the conclusion that customers’willingness to pay in our experiment follows the law of lognormal distribution. Basedon this result, we establish a demand function which is different with those inprevious studies. Then,we applied the demand functioninto the model. The analysisshows that there exists a clear numerical optimal solution of the model. And there isan obvious benefit if the retailer can follow the proposed pricing and procurementstrategy.