Improving Profitability with Quantity Discounts under Fixed Demand

Meir J. Rosenblatt · Hau L. Lee

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Supply Chain and Inventory Management Consumer Market Behavior and Pricing Sustainable Supply Chain Management

Abstract

Quantity discount schedules have been studied, in the past, from the retailer's, and not the supplier's, point of view. These studies address the problem of determining the economic order quantities for the retailer, given a quantity discount schedule set by the supplier. In this paper, this problem is addressed from the supplier's point of view, assuming that the retailer always uses his optimal order quantity. It is shown that under certain circumstances, quantity discounts could be of benefit to the supplier (and obviously to the retailer), even when retailer's demand is insensitive to price changes. An algorithm is developed to determine the optimal pricing policy for a linear quantity discount schedule. Numerical examples are provided, and sufficient conditions when no quantity discount should be offered are derived.

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1964Analysis of Inventory Systems.1979Decision Systems for Inventory Management and Production Planning 1984A Quantity Discount Pricing Model to Increase Vendor Profits 1975Operations Research in Production Planning, Scheduling and Inventory Control.1979Decision Systems for Inventory Management and Production Planning

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