Title: Coordination of pricing, advertising, and production decisions for multiple products

Authors: Naeem Bajwa; Charles R. Sox

Addresses: Department of Management, College of Business, University of Arkansas at Little Rock, Little Rock, AR 72204, USA ' Department of Information Systems, Statistics, and Management Science, Culverhouse College of Business, The University of Alabama, Tuscaloosa, AL 35487-0226, USA

Abstract: We address a decision problem of a profit-maximising firm which produces multiple products on the same equipment and markets them as different brands. The firm has to choose the prices of each of the product in each period, allocate advertising budget to the products, and decide a production schedule such that it maximises its profit. We formulate and solve this problem in discrete-time setting with capacity constraints and setup costs. Using real world data from a manufacturer, we create problem instances, for different demand scenarios at different capacities, and solve for optimal prices, advertising, and lot sizing. We demonstrate that the firm can significantly increase its profitability by coordinating marketing and operational decisions.

Keywords: product pricing; marketing-operations interface; coordination; advertising budgets; production planning; mixed integer nonlinear program; MINLP; multiple products; capacity constraints; setup costs; optimal prices; lot sizing; profitability.

DOI: 10.1504/IJSOM.2015.072741

International Journal of Services and Operations Management, 2015 Vol.22 No.4, pp.495 - 521

Received: 15 Jul 2014
Accepted: 18 Jul 2014

Published online: 28 Oct 2015 *

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