Market Segmentation, Advanced Demand Information, and Supply Chain Performance

Abstract

A monopolist sells a single product to a market where the customers may be enticed to accept a delay as to when their orders are shipped. The enticement is a discounted price for the product. The market consists of several segments with different degrees of aversion to delays. The firm offers a price schedule under which the customers each self-select the price they pay and when their orders are to be shipped. When a customer agrees to wait, the firm gains advanced demand information that can be used to reduce its supply chain costs. This article shows how an optimal pricing-replenishment strategy that balances the costs due to discounted prices and the benefits due to advanced demand information can be determined.