Determining optimal inventory policy and sales price under promotional expenditure for some Veblen products

Abstract

This paper focuses on determining the optimal promotional expenses as well as optimal sales price and lot-sizing policies for Veblen products, generally being luxury goods consumed conspicuously. The price-demand relationships considered for the product are the ones suggested by Leibenstein (1950). The promotion is assumed to increase the product's perceived value facilitating in increasing the selling price without sacrificing the demand. The effect of promotional expenses has been analysed for the niche and mass markets using two different relationships. For obtaining the optimal pricing, lot-sizing and promotional expenses, a mathematical model has been developed and a GA-based heuristic is also proposed. Numerical examples are taken to illustrate the use of the proposed problem solving approaches and also to carry out sensitivity analyses. The results show almost no impact of variation in setup cost and carrying cost rate on optimal inventory policy, but of the product unit cost. © 2022 Inderscience Enterprises Ltd.. All rights reserved.