Dynamic bi-product bundle pricing problem

• Main Authors: Rafiei Hamed, Rabbani Masoud, Razmi Jafar, Jolai Fariborz
• Format: Article
• Language: English
• Published: University of Novi Sad, Technical faculty Mihajlo Pupin, Zrenjanin 2014-01-01
• Series: Journal of Engineering Management and Competitiveness
• Subjects: bundle pricing; marketing; stochastic dynamic programming; product bundling
• Online Access: http://scindeks-clanci.ceon.rs/data/pdf/2334-9638/2014/2334-96381401047R.pdf

This paper addresses bundle pricing problem of two products in a stochastic environment so as to maximize net profit of a retailer. In the considered problem, it is assumed that customers are received upon a Poisson distribution and their demands follow a bi-variant distribution function. Also, it is assumed that products are sold individually or in the form of a bundle, which are offered from an initial stock of the products. To tackle the problem, a stochastic dynamic program is developed in which optimum values of the initial stock and order quantities of every planning period are determined. Moreover, prices of the individual products and their bundle are optimized. Also, the proposed dynamic program tackles bundling/ unbundling decisions taken in every planning period. A numerical example of a two planning period horizon is considered to validate the proposed model.