Title: Location pricing to effectively reduce inventory repositioning: the car rental industry

Authors: Kuangnen Cheng; Hui-Ping Chen

Addresses: Department of Management, Marist College, NY, USA ' Department of Industrial Management, National Pingtung University of Science and Technology, Taiwan

Abstract: Inventory repositioning or pooling to efficiently align demand and supply is a strategic tool widely used in the car rental industry. This technique produces optimal results when demand is negatively correlated between locations within a pool. In practice, effective pricing decisions are expected to complement capacity adjustment, so activities of inventory repositioning can be minimised. Although matching demand increases profit, inventory repositioning unavoidably increases cost; thus, this investigation explores a different aspect of inventory repositioning, namely, effectiveness. The study utilises live pricing data from the US car rental industry, an industry where price is a major differentiator in the market, to detect whether any unwarranted inventory repositioning activity can be removed. Hypotheses are formulated to test whether discrete pricing between weekdays and weekends indeed exists within each pool. Consequently, if rivals do not follow this dogma of discrete pricing strategy, then there must be some invaluable insights. This exploration reveals numerous unforeseen factors such as the size of a rival, the volume of the demand, the destination character (leisure vs. business city) and a constant exorbitant daily rental rate, etc., make inventory repositioning ineffective. Ultimately, an effective repositioning model is proposed.

Keywords: car rental industry; complementary demand; dynamic pricing; flexible capacity; inventory repositioning.

DOI: 10.1504/IJIR.2020.109791

International Journal of Inventory Research, 2020 Vol.5 No.4, pp.263 - 283

Received: 30 Nov 2019
Accepted: 20 Mar 2020

Published online: 16 Sep 2020 *

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