Paper Title
MANAGING AN EXPIRING PRODUCT WHERE THE DEMAND IS AFFECTED BY THE RETAILER'S REPUTATION

Abstract
The existing literature on inventory management rarely considers demand as being affected by reputation. For the retailer, reputation is a valuable asset, as consumers are more likely to trust a company that has a sound reputation. In this study, we develop an operational research approach in which the demand rate is affected by the price, remaining shelf-life, and retailer's reputation, as well as by the heterogeneity of consumers in terms of their sensitivity to the latter two factors. We represent the retailer's reputation by the overall average freshness level of the products sold on his shelf (obtained from records), while the retailer's objective is to maximize his profit. Reputation in general is relatively not an easy performance to measure and might require enormous data which is time consuming. In competitive world, simplified and reliable ways to do it may be an advantage. The developed model suggests a relatively simple measure which depends solely on cycle length and on the distribution of consumers' sensitivity to expiration. Our results support the fact that even not accurate estimations of this distribution would not significantly alter accuracy. Our analysis shows that the optimal pricing policy is only indirectly associated with the retailer's reputation (i.e., overall average freshness level), via the replenishment strategy. We demonstrate analytically that the retailer does not always prefer to achieve a higher reputation level, as this incurs higher costs due to faster replenishment. We show numerically that the retailer, issignificantly affected by consumers’ heterogeneity, experiencing either an increase or decrease in profits (relative to the baseline) depending on the specific distributions used to model consumer sensitivity values. We conclude that the retailer may consider not selling expiring products which the buyers are highly heterogeneous in their sensitivities. Keywords - Heterogeneous Market; Optimal Pricing; Expiring Inventory; Reputation