On the Optimal Marketing Strategy for Seasonal Products under the CVaR Criterion

Abstract

Abstract: The traditional Newsvendor problem is based upon risk neutrality with an objective of maximizing the expected profit or minimizing the expected cost. However, the demands of a seasonal product are random and dependent on selling price and advertising cost. With the effect of selling price and advertising cost considered, a Newsvendor model with Conditional ValueatRisk (CVaR) criterion as objective is derived. Based on this model, an optimal marketing strategy is found and the effect of risk aversion on the optimal strategy is analyzed. Examples are used to show the application of the proposed method and the managerial insights. The results are useful for retailers who sell seasonal products.

Key words: Newsvendor model, conditional valueatrisk(CVaR), marketing

Li Ji-cai1,2, Zhou Yong-wu2, Xiao Dan2, Liu Zhe-rui2. On the Optimal Marketing Strategy for Seasonal Products under the CVaR Criterion[J]. Industrial Engineering Journal , 2012, 15(5): 8-14.

References

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