Optimal markdown policies for perishable products with fixed shelf life

The market for perishable products is subject to short selling seasons and volatile demand. Retailers use strategies such as issuing policies, quality disclosure, and markdown pricing to maximise revenue and reduce waste. Among the markdown options, the best policy is not always clear-cut, as there is a trade-off between the complexity of the policy and the revenue generated. To address this, we introduce a joint model that optimises issuing, quality disclosure, production, and markdown pricing for perishable products with fixed shelf lives and freshness-sensitive customers. We make the first attempt to theoretically and numerically evaluate the effectiveness of different markdown policies, including single-stage, multiple-stage, and dynamic markdown policies. Empirical case studies validate the models, showing that hiding product quality is optimal and the best issuing policy depends on customer freshness sensitivity. We prove that the value of markdown policies asymptotically vanishes as the market demand or customers' maximum willingness-to-pay (WTP) increases. Conversely, the benefits of markdown policies increase when per unit expiration, shortage, and production costs rise. Additionally, while multiple-stage and dynamic markdown policies can significantly benefit the system, in most cases, their benefits over the single-stage policies are insignificant and vanish asymptotically.