Professor Cenying Yang, of the Department
of Information Systems, along with co-authors,
has been exploring novel approaches to tackle
the growing problem of fresh food wastage. The
revenue generated by perishable fresh produce
constitutes more than half of grocery chain
revenues; however, approximately 10% of food in
grocery stores is discarded annually in the United
States. This not only negatively impacts the bottom
line of grocery retailers but also contributes to food
waste. This research combines dynamic pricing and
information disclosure strategies to assist retailers
in effectively selling fresh produce while promoting
sustainability.
The study focuses on a quality-based pricing
strategy and examines whether retailers should
disclose information regarding food quality
to customers. A model is considered where
a monopolistic retailer sells fresh produce to
customers who possess varying perceptions about
food quality within a specific time frame. To
determine the optimal pricing and information
strategies, a deep reinforcement learning algorithm
is employed. Simulation results indicate that a
quality-based pricing strategy results in lower prices
compared to a strategy that does not account for
quality. Lower prices drive demand, thus improving
profits and reducing food waste.
Furthermore, the study demonstrates that when an
information strategy is implemented, the prices in
a quality-based pricing strategy either remain the
same or increase during the selling season. This is
attributed to the fact that information disclosure
helps align customers' biased perceptions of food
quality with the actual levels. The combination of quality-based pricing and information disclosure
further improves profits and reduces food waste,
particularly when a significant portion of customers
perceive the quality to be lower than actual levels.
To facilitate the implementation of their ideas, the
authors propose a cloud-based automated system
that integrates sensor data, artificial intelligence,
and customer communications. These findings hold
significant implications for the food industry in
managing fresh produce effectively.
Yang, Cenying; Feng, Yihao; Whinston, Andrew.
"Dynamic pricing and information disclosure for
fresh produce: an artificial intelligence approach."
January 2022; In: Production and Operations
Management Society. Vol 31, No. 1, pp.155-171
Reference:
https://onlinelibrary.wiley.com/doi/full/10.1111/poms.13525
