Optimal production policy of production system with inventory-level-dependent demand in segmented market

A marketing orientation is based on a customer-driven focus. During the past two decades we have seen the rise of market segmentation in business markets. Market segmentation is an essential element of marketing in industrialized countries. It has emerged as a key marketing planning tool and the foundation for effective formulation in industrialized countries and firms. In this paper, we use market segmentation approach in inventory-production system for single product and we assume that firm has single production unit for all segment. The objective is to develop an optimal production policy that minimize the total cost associated with inventory and production rate in segmented market and make use of optimal control theory to solve the production-inventory problem. First, we consider a single source inventory problem with multi-destination demand that vary from segment to segment. Further, we discuss a multidestination demand and inventory problem under the assumption that firm may choose independently the inventory directed to each segment. Both the problems are discussed and solved using optimal control theory approach.