Pricing And Ordering Strategies For Perishable Products With Different Quality Levels

We consider a monopoly that sells a perishable product in atwo-period model. The retailer places an order at the first period whicharrives at the second period after a long-distance transportation. Eachproduct has a probability to be preserved at high-quality level withoutquality deterioration during the delivery, which is captured by freshnesskeeping ratio. Both high-quality and low-quality products are sold andcompete with each other in the market. We characterize the retailer’soptimal pricing and ordering strategies. We find that the optimal orderingquantity and optimal profit decrease but the optimal prices increase aspreservation cost increases which is involved during the delivery. We alsofind that, when more customers arrive or products are more verticallydifferentiated, it is optimal to order more and the optimal profit is larger.We also investigate the role of freshness keeping ratio and furthercharacterize the optimal freshness keeping ratio under various structures ofthe preservation cost.When faced with products of different quality levels, the retailer hastwo different selling strategies, i.e., pure selling strategy and mixed sellingstrategy. In the mixed sales, the retailer should consider the choicebehavior of customers, i.e., the customer will select the better ones. Wecharacterize the retailer’s optimal pricing and ordering strategies in themixed sales strategy. Through numerical analysis, we explore the effects ofmarket demand volatility, product quality difference and freshness keeping ratio on the retailer’s optimal decisions and profit under different sellingstrategies.