Read Retailer: A Retail Pricing Simulation Exercise

This case describes the broad set of challenges facing a retailer when making pricing decisions over time.

We will be using the data from this case to focus our discussion on a less complex version of the

scenario described in the case. The sales data referenced in the case is found in the spreadsheet

retail$\_$student.xlsx on the course website. As you prepare for the upcoming class session, please

consider the following questions:

$$ How would you estimate weekly demand at each price?

$$ Assuming weekly demand is constant and known for each price, how would you determine the optimal markdown policy for a given starting inventory level?

$$ What are the decision variables?

$$ What is the objective function?

$$ What are the constraints?

$$ What makes real$-$world fashion markdown pricing more difficult than the LP model you would

create?

To simplify the retailer mark$-$down decision, we will assume we are focusing on a single item, which has an inventory of $1,350$ pieces, selling season of $15$ weeks, no replenishment, and no post$-$season value. Prices allowed: $$60($full price$),$ $$54(10\%$ off$),$ $$48(20\%$ off$),$ $$36(40\%$ off$).$ We will assume price cannot be raised once it is cut.

What is your estimate for the weekly demand for an item at each of the prices?

$60$: $\_\_\_\_\_\_\_\_$

$54$: $\_\_\_\_\_\_\_\_$

$48$: $\_\_\_\_\_\_\_\_$

$36$: $\_\_\_\_\_\_\_\_$