Ordering Strategy Of Off-price Merchandise With Demand Externalities

With the development of the economy, products are increasingly diversified. The demand of products are not only influenced by its own factors, but also affected by other products. The influence of other products may increase its demand or reduce its demand. In the circumstances, we call this kind of other products having positive demand externalities or negative demand externalities. Off-price merchandise is a typical product having demand externality. Shopping malls and supermarkets promote off-price merchandise. On one side, it can attract customers increasing other merchandise. As for other merchandise, off-price merchandise has positive demand externalities. One the other side, off-price merchandise is cheaper than its substitute, so the demand of substitute will decrease. As for Off-price merchandise's substitute, off-price merchandise has negative demand externalities. Therefore, it is of great significance for maximizing retailers' sales profit to consider off-price merchandise' demand externalities and study ordering policies and optimal pricing.Off-price merchandise has positive demand externalities for other merchandise and negative demand externalities for substitute, which is considered in this paper. The demand functions of three kinds of goods are respectively constructed. An EOQ model of off-price merchandise having demand externalities is generated. And then, consumer waiting behavior is analyzed when off-price merchandise is stockout. Consumers are divided into two group, price preference group and time preference group. And two kind of backlogging rate are constructed. Another EOQ model of off-price merchandise with demand externalities, deterioration and stock-dependent selling rate is generated. The retailer's optimal pricing and ordering strategy is studied through optimal solution analysis and numerical simulation. It showed that in-stock time of off-price merchandise and order quantity of the three kinds merchandise exist lower limit. Whether off-price merchandise can bring more profit need to retailers depends on certain conditions. The average profit is a decreasing function of demand related factor when the difference in related merchandise's selling and purchase price is greater than a critical value. Under the circumstances, retailers should increase promotion efforts, make price of off-price merchandise lower, extend instock time, shorten outstock time, increase order quantity of off-price merchandise and related merchandise, and decrease order quantity of substitute. When price preference group is big, retailers should make price of off-price merchandise lower, lower standards of service, and shorten order cycle. When customer's time and price sensitive factor becomes bigger, retailers should raise off-price merchandise's price and standards of service, extend instock time, shorten outstock time, and extend order cycle. Furthermore, switchovers toward price difference sensitivity factor and demand substitution factor also has great influence on retailers' pricing and ordering strategy.