The Impacts of Scheduling price Discounts for Perishable Foods on Retailer Performance
Received: Jul 31, 2013; Accepted: Oct 14, 2013
Published Online: Oct 31, 2013
Perishable foods, which spoil within a short time, and therefore experience significant value deterioration, represent a product category that is important to success in the food retail industry. This is because perishable foods can significantly influence sales in food retail stores, and are considered by consumers as an important indicator of a store’s quality. Despite the importance of perishable foods, food retailers face challenges in pricing perishables, because they require a more complex pricing procedure than non-perishable products. Unlike non-perishable products, perishable foods experience a significant loss of value as they approach their expiration dates. Also, it is true that consumers’ willingness to pay for perishable foods generally decreases as the expiration dates approach. Consumer confidence in perishable foods decreases as expiration dates come closer, since fewer days remaining can mean deterioration of freshness, and foods that have remained in inventory for a long time are thought to be inferior. Therefore, it is important to dynamically manage the price of perishable foods to compensate for the value deterioration associated with the approaching end of the selling period.
Many previous studies have investigated the pricing of perishable products, and most of these studies focused on the optimal price structure to maximize profit. A recent study has investigated the effects of discount frequency on retailer performance, using a simulation model. However, these prior studies have failed to show the effects of the price discount starting time on retailer performance. Therefore, this study aims to demonstrate how the price discount starting time for perishable foods could affect retailer performance in terms of inventory aging, waste due to unsold products, and sales volume. A simulation model, which represents the general business process in the food retail stores, and conducted in the C programming language, was built. The general business process at food retail stores and consumer demand assumptions in Chung and Li(2013ab) was used to build the simulation model in this study.
The results of this study present the value of an earlier price discount and its ability to increase retailer sales, reduce wastage due to unsold products, and mitigate the inventory aging of perishables. Specifically, this study found that for a specific perishable food, for which the average demand exceeds supply, an earlier price discount does not assist retailers in improving performance. When the average demand is equal to supply, an earlier price discount slightly increases sales volume. As for wastage due to unsold products and inventory aging, retailers can expect positive impacts from an earlier price discount. For a specific perishable food, for which the average supply exceeds demand, significant positive impacts can be expected from an earlier price discount. An earlier price discount can enhance sales volume, reduce waste due to unsold items, and mitigate inventory aging. These positive impacts are expected to be more significant for perishable foods that have relatively longer shelf lives. With the results of this study, we propose that retailers should discount the price of perishable foods earlier, but at a smaller rate, by considering the value lost as the remainder of shelf life decreases.
This study presents valuable practical implications and academic contributions, which provide a better understanding of the value of earlier price discounts for perishable foods. This study has several limitations. This study has investigated the general impacts of an earlier price discount for perishable foods on retailer performance; on the other hand, it does not show the optimal time and rate of price discounting. Furthermore, this study assumed that every consumer behaves rationally, and considers their consumption needs when making a purchase. However, some consumers may not behave rationally when purchasing perishable food. Further studies considering these issues may provide a better understanding of the positive impacts of an earlier price discount for perishable foods.
신선식품(perishable foods)은 짧은 유통기한과 시간의 흐름에 따른 가치하락을 지나고 있는 식품군으로 써, 이는 식품 소매업계의 매출과 경쟁력에 중요한 영향을 미치고 있다. 이러한 중요성에도 불구하고, 신 선식품의 속성상, 다른 제품에 비해 복잡한 가격결정 프로세스를 지니고 있음으로, 식품 소매업자들은 신 선식품의 가격정책 수립에 있어서 많은 어려움에 직면하고 있다. 대부분의 신선식품은 유통기한의 만료가 가까워질수록 신선도의 저하로 인해 제품의 가치가 하락하는 특성을 지니고 있다. 이러한 신선식품의 특 성은 고객의 구매의도에 영향을 미치고 있으며, 이는 식품소매업자의 성과에 직간접적으로 영향을 미치고 있다. 그러므로 식품소매업자는 유통기한이 다가옴에 따른 신선식품의 가치하락에 대한 손실을 보상할 수 있는 적절한 가격정책의 수립을 통해 매출을 증가시키고, 폐기량을 줄이며, 재고의 노화(inventory aging) 를 완화시켜야 할 것이다.
선행연구에서 시간의 흐름에 따라 가치를 상실하는 제품(perishable products)의 최적 가격정책 모형에 관한 많은 연구가 이루어졌다. 하지만, 가격인하시점이 유통업자의 성과에 미치는 영향에 관한 논문은 거 의 없다. 따라서 이 논문에서는 신선식품의 각기 다른 가격인하 시점이 식품소매업의 성과지표에 어떤 영 향을 미치는지 시뮬레이션 모델을 통해 분석하였다. 분석 결과, 이 연구는 식품소매업자의 신선식품의 빠 른 가격인하정책(earlier price discount)이 매출을 향상시키고, 유통기한이 지남에 따른 제품의 폐기량 (wastage due to unsold products)을 감소시키며, 그리고 재고의 노화를 완화시키는 등 긍정적인 영향을 주고 있음을 보여준다.