The past decade has seen a virtual explosion of information about customers and their preferences. Many companies have the ability to gauge customers’ willingness to pay for their products and can determine with some accuracy the effect of price changes on sales volumes. With Internet shopping, it is possible to effect such price changes at minimal cost for different customer segments and even for individual customers. Perhaps more enticing is the development of electronic shelf-labeling systems, which open the door to a remarkable array of possibilities for dynamic pricing in brick-and-mortar stores. The potential for increased revenue is huge.
At the same time, companies have taken major strides in understanding and managing the dynamics of the supply chain. Internally, many companies have implemented the tools and concepts of lean manufacturing. And externally, they have aggressively pursued supply chain initiatives, such as electronic procurement; vendor-managed inventory and collaborative planning; forecasting; and replenishment. The potential for cost reduction and service improvement is great.
Yet despite these potential benefits, there is a persistent dilemma. Pricing decisions have a direct, and sometimes dramatic, effect on operations and vice versa. This is vividly illustrated by the bullwhip effect, which can be initiated by price promotions (a classic 1997 paper by Lee et al. explains this effect). A more recent paper by Macé and Neslin (2000) provides new insight into consumer stockpiling... To read the complete article, login or sign-up using the form below.
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