Joint Optimization of Pricing and Advertisement for Seasonal Branded Products

Authors: Mohammad Modarres, Shirin Aslani

Abstract:

The goal of this paper is to develop a model to integrate “pricing" and “advertisement" for short life cycle products, such as branded fashion clothing products. To achieve this goal, we apply the concept of “Dynamic Pricing". There are two classes of advertisements, for the brand (regardless of product) and for a particular product. Advertising the brand affects the demand and price of all the products. Thus, the model considers all these products in relation with each other. We develop two different methods to integrate both types of advertisement and pricing. The first model is developed within the framework of dynamic programming. However, due to the complexity of the model, this method cannot be applicable for large size problems. Therefore, we develop another method, called hieratical approach, which is capable of handling the real world problems. Finally, we show the accuracy of this method, both theoretically and also by simulation.

Keywords: Advertising, Dynamic programming, Dynamic pricing, Promotion.

Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1334508

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