Joint optimization of ordering and promotional strategies for retailers: Rebates vs. EDLP

• We focus on retailers’ choice between rebates and EDLP.
• We jointly optimize ordering and promotional pricing strategies.
• We conduct comprehensive numerical studies.
• We find price sensitivity and regular price critical when choosing rebates or EDLP.

Retailers face a complex task in formulating ordering and promotional strategies in today’s business. To help those retailers, this paper aims to investigate the joint optimization of ordering and promotional strategies focusing on the choice between rebates and everyday low price (EDLP). After quantifying consumers’ purchase and redemption decision making, we jointly determine the optimal order quantity, rebate face value, and required redemption effort level for a rebate program. For the EDLP strategy, we jointly optimize the retailers’ order quantity and pricing decisions. Comprehensive numerical studies highlight the main features of the model and provide managerial insights. We find that the price sensitivity and regular undiscounted retail price are among the most influential factors in choosing promotional strategies. Our analysis concludes that this choice is not only a pure pricing strategy but more of a marketing positioning strategy for retailers.