Displaying and Discounting Perishables: Impact on Retail Profits and Waste

Forthcoming, Management Science

56 Pages Posted: 3 Mar 2023 Last revised: 27 Nov 2024

See all articles by Zumbul Atan

Zumbul Atan

Eindhoven University of Technology (TUE) - Department of Industrial Engineering and Innovation Sciences

Dorothee Honhon

University of Texas at Dallas

Xiajun Amy Pan

University of Florida - Warrington College of Business Administration

Date Written: February 25, 2023

Abstract

Empirical studies have shown that consumers' purchasing behavior depends on product display, i.e., how products are organized on store shelves. We explore how a retailer selling a perishable product with deteriorating quality over time can optimize   product display and the discounting of soon-to-expire units to maximize profit and reduce waste. Specifically, we consider a product with a finite shelf life which is replenished periodically.  The retailer optimizes the product display setting, the discount rate and timing, as well as the order quantity in each replenishment cycle.  We assume that the length of the replenishment cycle is such that, at most, two different product ages can co-exist on the store shelves, and we refer to these two groups of products as the fresh batch and the old batch. We show that, when the store traffic is deterministic, only the following two policies can be optimal: (i) discarding unsold units at each replenishment epoch, so that there is only one product batch on the shelves at all times  or (ii) keeping and discounting unsold old batch units but making the fresh batch units more accessible to consumers. In contrast, when the store traffic is stochastic, all possible strategies can be optimal, as waste becomes unavoidable.   In particular, the optimal strategy depends on the characteristics of the product,  store, and consumers.  Our numerical results indicate that, compared to a benchmark where units from the fresh and old batch are equally accessible and no discount is offered, optimizing the display and the discount  results in an average increase in profit of 6.01% and a decrease in (relative) waste of 21.24%.

Keywords: perishable products, display setting, replenishment, waste

Suggested Citation

Atan, Zumbul and Honhon, Dorothee and Pan, Xiajun Amy, Displaying and Discounting Perishables: Impact on Retail Profits and Waste (February 25, 2023). Forthcoming, Management Science
, Available at SSRN: https://ssrn.com/abstract=4369956 or http://dx.doi.org/10.2139/ssrn.4369956

Zumbul Atan

Eindhoven University of Technology (TUE) - Department of Industrial Engineering and Innovation Sciences ( email )

Den Dolech 2
Eindhoven
5600 MB Eindhoven
Netherlands

Dorothee Honhon

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Xiajun Amy Pan (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
367
Abstract Views
957
Rank
168,559
PlumX Metrics