Robert W. Shoemaker

Developing optimal pricing and inventory policies for retailers who face uncertain demand

Abstract Retailers who sell products such as new fashion items or new toys face considerable uncertainty in demand. Despite this uncertainty, they are required to make two important decisions that depend on the level of demand. First, they need to decide on how the product should be priced over the selling season. Second, they need to determine how much to stock and reorder each period. In this paper, we develop a new model for use by retailers that incorporates the following. First it includes “learning” or updating of demand. Second, it determines the optimal pricing policy. Third, it determines the optimal stocking policy. The new model appears to offer advantages for new items where the selling season is limited and the retailer is quite uncertain about the true demand distribution. Several example problems are solved to illustrate the potential advantages and to indicate the types of questions that can be investigated with the model.

Behavioral Changes in the Trial of New Products

The theory of perceived risk suggests that consumers can reduce the consequences of trying a new brand by buying a smaller quantity on the trial purchase than is normally bought. This study, based on longitudinal analysis of 1,480 individual new brand buyers, found that initial purchase quantities were smaller, as predicted.

A Research Agenda for Making Scanner Data More Useful to Managers

This paper presents a research agenda for making scanner data more useful to managers. Recommendations are generated in three areas. First, we draw on three case examples to distill a list of characteristics of research that encourage managerial impact. Second, we generate a master list of managerial research issues, and then, compile a list of nine priority topics. Third, we define a set of research topics on translating research into action. These topics involve the manner in which managers react to research and how they communicate research findings with other managers. The theme throughout is that a combination of rigor and relevance is a potent force for improving managerial practice.

A Comment on Price-Endings When Prices Signal Quality

Stiving (2000) proposes an interesting model to explain price-endings. His analysis shows that even when customer demand increases at 9-ending price points, certain firms that use high prices to signal quality are more likely to set those prices at round numbers. This comment raises two issues about the model. First, it appears that the original paper imposes a condition that has the effect of eliminating a broad range of legitimate separating equilibria from the analyses. Second, it appears that the original model does not include constraints to ensure that the demand for each market segment will be nonnegative. When these constraints on demand are included, one obtains different aggregate demand curves, which leads to different equilibrium prices. Using the revised model and analysis, we find that 71% of the prices end in 9 and only 12% in 0. This contrasts with only 3% ending in 9 and 58% ending in 0 for the original study. Therefore, 9-endings still prevail even though high prices can be used by firms to signal high quality.

Is television advertising being placed to reach product users

Several textbooks, journal articles, and advertising practitioners indicate that the advertising for many products should be directed toward the heavy users of the product category. Other works suggest that advertising should be directed at current users of a brand to retain them or to users of competitive brands in an effort to attract them. The purpose of this article is to compare these directions for how advertising should be placed with data showing how advertising is being placed. The comparison is made using supermarket scanner panel data and household advertising exposure data. Examples are also provided to indicate the extent to which advertising could be targeted to heavy users of the product category and users of a brand, given the actual viewing and consumption patterns. Several implications for the placement of advertising are discussed.