A Study on Optimal Discount Strategy of Perishable Food in Supermarkets

Abstract

In this paper, we study the effect of an optimal discount strategy on the total expected revenue for perishable foods. We use an algorithm proposed by Feng and Gallego (1994) to derive the optimal strategy. The parameters that need to obtain the strategy are estimated based on point-of-sale (POS) data. The optimal strategy is obtained so as to maximize the total expected revenue and is based on a threshold model. We show the discount strategy visually and compare the expected revenue under a traditional strategy with that under the optimal strategy proposed. The proposed approach results in an expected revenue increase of 17.4%.