A conceptual model for automation of product dynamic pricing and sales promotion for a retail organization

Abstract

Purpose

The purpose of this paper is to capture the dynamic variations in sales of a product based upon the dynamic estimation of the time series data and propose a model that imitates the price discounting and promotion strategy for a product category in a retail organization. A modest attempt has been made in the study to capture the relationship between the sales promotion, price discount and the batch procurement strategy of a particular product category to maximize sales volume and profitability.

Design/methodology/approach

Time series data relating to sales have been used to model the sales estimates using moving average and proportional and derivative control; thereafter a sales forecast is generated to estimate the sales of a particular product category. This provides valuable inputs for taking lot sizing decisions regarding procurement of the products that considerably impact the sales promotion and intelligent pricing decisions. A conceptual framework is developed for modeling the dynamic price discounting strategy in retail using fuzzy logic.

Findings

The model captures the lag effect of sales promotion and price discounting strategy; other strategies have been formulated based upon the sales forecast that was done for taking the lot sizing decisions regarding procurement of products in the selected category. This has helped minimize the inventory cost thereby keeping the profitability of the retail organization intact.

Research limitations/implications

There is no appropriate empirical data to verify the models. In light of the research approach (modeling based upon historical time series data of a particular product category) that was undertaken, there is a possibility that the research results may be valid for the product category that was selected. Therefore, the researchers are advised to test the proposed propositions further for other product categories.

Originality/value

The study provides valuable insight on how to use the real-time sales data for designing a dynamic automated model for product sales promotion and price discounting strategy using fuzzy logic for a retail organization.

Citation

Kumar, A. (2016), "A conceptual model for automation of product dynamic pricing and sales promotion for a retail organization", Kybernetes, Vol. 45 No. 3, pp. 490-507. https://doi.org/10.1108/K-03-2015-0075