Pricing for Complementary and Substitute Products Simultaneously in the Package-Sale and Separate-Sale

Pricing for Complementary and Substitute Products Simultaneously in the Package-Sale and Separate-Sale

Ashkan Mohsenzadeh Ledari (Kharazmi University, Tehran, Iran), Alireza Arshadi Khamseh (Kharazmi University, Tehran, Iran) and Bahman Naderi (Kharazmi University, Tehran, Iran)
Copyright: © 2019 |Pages: 17
DOI: 10.4018/IJBAN.2019010105

Abstract

In this article, the authors present a model for the pricing of a substitute and complementary products (four commodities) while the seller delivers the products individually, in the form of a package to the final customer, and compares the profits from the sale of each scenario. Also, a comparative study has been completed. In the package sale, two complementary products are delivered in one package, but each item is sold in separate sales. The demand function for each product is a function of the price. To illustrate the validity of the model, numerical examples have been used and a sensitivity analysis has been done on the important parameters in the problem.
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Introduction

The concept of integrating business activities beyond the boundary of markets has led to develop the theory of supply chain management. In recent decades, many powerful retailers have appeared in the world and in size and capacity, and they are often much larger than the manufacturers and usually retail multiple substitutable and/or complementary products.

In recent decades, members have been encountering new dimensions for competition in the supply chains. Therefore, they need more and more effective supply chain management. Pricing decisions by members of the supply chain are one of the critical factors in effective supply chain management since they are important from both operational and financial point views. Levels of the supply chain can manipulate their total demand by handling their pricing strategies. Hence, they can manage their operation and gained profit. Additionally, many manufactures have increased product varieties by differentiating one or several attributes of the products, or manufacturers have produced negative cross elastic products to get full utility of other products in order to compete for market share and profit gain.

Profitability and ensuring the profitability are some of the main reasons to create a supply chain so that each chain instead of increasing their profits seeks to maximize the benefit of the entire chain, so pricing a single item or multiple items in system have a great importance.

The variety of products and services, as well as uncertainties in customer demand for products, have led companies to cooperate with each other in the form of a supply chain to meet customer satisfaction. One of the basic parameters in determining the demand of each company is the price of the product (service) which is provided by the company. Hence, one of the important issues of each company is to determine the price of a product in order to maximize its profit. It is of particular importance due to the limited community of customers and the impact of the price on placing the demand among companies. Products usually replace or complement each other, where complementary products are commonly used together and their demand is directly impacted on one another, and substitute products are usually used instead of each other and their demand is negatively impacted on one another.

In general, providing the game theory in the supply chain is due to the interaction between the members of the supply chain. The supply chain members may have been conflicting with objectives, so that each chain is seeking to maximize profits and this may lead to a reduction in the overall supply chain profit. For this reason, most models in the supply chain seek to interaction between the supply chain members, so that the total supply chain profit is maximized and the profit or loss in the supply chain is shared between all supply chain segments.

In the past decades many powerful retail chains have appeared around the world (Walmart, Carrefour, etc.). These powerful retailers are often much larger than most manufacturers, and they usually retail multiple substitutable products of an item sourced from two different manufacturers to end consumers. For example, Wal-Mart sells substitute brands of detergents like, Unilever brands (Surf, Wisk) and P&G brands (Tide, Gain, Cheer).

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