Dynamic and adaptive price quotation in a Make-To-Order company

This paper studies a problem in which a Make-To-Order (MTO) firm makes price quotation to each customer on its arrival. The price is decided based on the firm´s knowledge of its target market, i.e., the distributions of customer´s willingness to pay, impatience factor, etc. We propose a dynamic pricing strategy to find the optimal price as well as an approximation method for large scale problems. We also propose a learning method to adaptively revise the firm´s estimation of the distributions of customer´s willingness to pay and impatience factor according to the customers´ purchase behavior. We consider two possible cases. First, we study the case where the firm only provides due-date-guaranteed service. Second, we study the case where the firm offers due-date-guaranteed-optional service, in which the customer can choose either due-date guaranteed orders or due-date unguaranteed orders.