by Martin Natter, Andreas Mild, Thomas Reutterer, Alfred Taudes
The authors describe a decision-support system for dynamic retail pricing and promotion planning. They weekly demand model incorporates price, reference price effects, seasonality, article availability information, features, and discounts. They quantify demand interdependencies and integrate the resulting profit-lifting effects into the optimal pricing model. The methodology was developed and implemented at bauMax, an Austrian do-it-yourself retailer. Along with the practical requirements, an objective function was employed that can be used as a vehicle for implementing a retailer’s strategy. Eight pricing rounds with thousands of different stock-keeping units have each served as a testing ground for our approach. The currently implemented marketing decision-support system increased gross profit on average by 8.1 and sales by 2.1%.
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