Effects of dynamic pricing of perishable products on revenue and waste

This paper deals with dynamic price strategies to reduce food and other perishable products spoilage. A deterministic mathematical model is proposed to study the influence of a number of factors, such as price elasticity of demand, age-sensitivity of demand and age profile of initial inventory, on revenue and spoilage. A parametric, bi-objective approach is considered with the aim of estimating the existing trade-offs between revenues and spoilage. The effects of price discounting are different in each scenario and also depend on the speed at which the price is reduced as it ages. Although a dynamic price strategy helps reduce spoilage, its effect on total revenue depends heavily on the scenario. In some specific cases identified below in the paper, total revenue can slightly increase or, at least, maintain its level. In other scenarios, the spoilage reduction comes as a loss in total revenue that can go from small to significant, depending on the scenario and the speed of the price discounting strategy. The proposed approach allows the quantification of the available trade-offs for each scenario. It also allows the analysis of the age distribution of units sold and their respective revenue contribution. (C) 2016 Elsevier Inc. All rights reserved.