Any asset that loses its value in the due course of time is considered as a perishable item, for example, all fruits, vegetables and pharmaceuticals. We can also include computers, cell phones, fashion apparels, etc.; whatever loses its value after the launch of the new model is considered as perishable.
We use two approaches for perishable assets in the revenue management. These approaches are:
• Fluctuate cost over time to maximise expected revenue.
• Overbook sales of the assets to cope or deal with cancellations.
The first approach is highly recommended for goods like fashion apparels that have a precise date across which they lose a lot of their value; for example, apparel designed for the particular season doesn’t have much value at the end of the season. The manufacturer should try using effective pricing strategy and predict the effect of rate on customer demand to increase total profit. Here the general trade-off is to demand high price initially and allow the remaining products to be sold later at a lower price. The alternate method may be charging lower price initially, selling more products early in the season and then leaving fewer products to be sold at a discount.
The second approach is very fruitful here. There are occurrences where the clients are able to cancel placed orders and the value of asset lowers significantly after the deadline.