National Science Foundation
Oklahoma State University
In recent years, retail and manufacturing companies have started exploring innovative revenue management techniques in an effort to improve their operations and ultimately the bottom line. Firms are employing methods such as segmenting customers based on their sensitivities to price and leadtime, as well as dynamically adjusting price over time based on inventory levels or production schedules to increase their profits.
For instance, on Dell’s website, the same product is sold at different prices depending on whether the purchase is made by a private consumer, a small business, a large business, a government, or an educational institute. A more careful review of Dell’s strategy suggests that even the price of the same product for the same class of customers is not fixed; it may change significantly overtime.
Unfortunately, the practice in industries has not been accompanied by similar progress in new models and solution techniques. Industrial practice lacks theoretical guidance and technical supports. To make matters even worse, in most companies, pricing decisions are typically made by marketing or sales departments, usually with little considerations to the impact of decisions on production and supply chain performance, which is typically managed by the operations departments.