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2199. Analysis of Markdown Strategies for Perishable Products

Invited abstract in session WD-13: Reducing Food Waste, stream Secure & Sustainable Food Supply.

Wednesday, 14:30-16:00
Room: 15 (building: 116)

Authors (first author is the speaker)

1. Lena Riesenegger
Supply and Value Chain Management, Technical University of Munich
2. Alexander Hübner
Supply and Value Chain Management, Technical University Munich

Abstract

Discounting perishable products before they expire, known as markdown pricing, is today's most common and popular reactive food waste mitigation practice among retailers. Product age and price influence customer behavior: While some customers do not buy products that are about to expire, discounted prices may attract new customers who initially did not plan to buy the product. The time of discounting and the applied discount level are crucial decisions. Early discounts can lead to margin losses, while late discounts may generate too little demand. If the price discount is set too high, the remaining stock may be sold quickly and completely, but the margin may be considerably lower. Current literature lacks consideration of different product ages on the shelf and the corresponding behavioral dynamics of customers. We contribute with a simulation study that considers price elastic demand, customers' freshness preferences, and changes in customer behavior when a discount is applied. We conducted several experiments considering different customer preference patterns. Results show that discounts are particularly worthwhile for products where customers prefer fresh products and withdraw them according to last-expired-first-out. Furthermore, customers switching from fresh to old, discounted products contribute to food waste reduction, while the influence on profit depends on the product's initial waste level.

Keywords

Status: accepted

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