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Demand Shaping Through Bundling and Product Configuration: A Dynamic Multiproduct Inventory-Pricing Model
- Source :
- Operations Research. 69:525-544
- Publication Year :
- 2021
- Publisher :
- Institute for Operations Research and the Management Sciences (INFORMS), 2021.
-
Abstract
- In today’s digital age, with the aid of the internet and data mining, many firms use vertically differentiated product bundling to influence demand to match up with inventory status, especially in industries with short product life cycles. Despite this practice, there is little understanding on how exactly the inventory dynamics impact the bundling strategy, and, in turn, how the bundling strategy affects the firm's inventory decisions. To fill this gap, we present a dynamic model to analyze the optimal joint replenishment, pricing, and bundling decisions over time. A key enabler of our analysis is a novel demand model that transfers the discrete bundling decision and the corresponding pricing decision into a continuous market share decision. We show that the optimal policy is dictated by a no-order set in each period. For items in this set, we do not place replenishment orders, because these items are overstocked. The rest of the policy parameters -- the order-up-to-levels for the items that we do order, the bundling and pricing decisions, and the bundle assembly quantity -- all depend on the overstock levels. We also characterize how the optimal bundling decision depends on item complementarity, cost structure, inventory levels, demand uncertainty, and supply responsiveness.
- Subjects :
- business.industry
Consumer choice
05 social sciences
Information technology
Management Science and Operations Research
Vertical differentiation
Computer Science Applications
Microeconomics
Order (exchange)
Complementarity (molecular biology)
Bundle
0502 economics and business
Dynamic pricing
050211 marketing
The Internet
Product (category theory)
050207 economics
Market share
business
Industrial organization
Overstock
Subjects
Details
- ISSN :
- 15265463 and 0030364X
- Volume :
- 69
- Database :
- OpenAIRE
- Journal :
- Operations Research
- Accession number :
- edsair.doi.dedup.....8ba559f2c21822614d4bd67eed134232