Optimal pricing and delayed incentives in a heterogeneous consumer market Moutaz Khouja  , Stephanie S. Robbins and Hari K. Rajagopalan Received (in revised form): 10th July, 2007  Business Information Systems and Operations Management Department, The Belk College of Business Administration, The University of North Carolina — Charlotte, Charlotte, NC 28223, USA Tel: þ 1 704 687 3242; Fax: þ 1 704 687 6330; E-mail: mjkhouja@email.uncc.edu Moutaz Khouja received a BS in Mechanical Engineering, an MBA from the University of Toledo and a PhD in Operations Management from Kent State University. Currently, he is a Professor of Operations Management in the Belk College of Business Administration at the University of North Carolina at Charlotte. His research interests are in the areas of inventory management, production planning and control, pricing and forecasting. His publications have appeared in many leading journals including Computers and Operations Research, Deci- sion Sciences, IIE Transactions, European Journal of Operational Research, International Journal of Production Research, International Journal of Production Economics, Journal of the Operational Research Society, and Omega. Stephanie S. Robbins received a PhD in Management from Louisiana State University. She is currently a Professor of MIS/OM at The University of North Carolina at Charlotte. Dr Robbins does research in the areas of management information systems, marketing management and strategy development for non-profit organisations. Her publications have appeared in journals such as International Journal of Electronic Commerce, European Journal of Operations Research, International Journal of Production Economics, Information and Management, The Journal of Computer Information Systems, Behavioral Science and the Journal of the Academy of Marketing Science. She has also presented numerous papers at international, national and regional professional meetings. Hari K. Rajagopalan earned his PhD in Information Technology from the University of North Carolina at Charlotte in 2006. Apart from his PhD, he also has an MBA in Finance and an MS in Computer Science. His research interests include locating emergency response systems, pricing of digital products and ob- solescence in the high-technology industry. His research has published in the European Journal of Operational Research, Computers and Operations Research and other journals. He is also an active participant at INFORMS, Decision Sciences, and European Working Group in Transportation Meeting and Mini EURO Conferences. He is currently the Assistant Professor in Management at Francis Marion University. ABSTRACT KEYWORDS: pricing, delayed incentives, mail-in cash rebates Delayed incentives in the form of cash mail-in rebates have become very popular. We develop and solve a model for jointly determining optimal price and rebate value for a heterogeneous consumer market. Con- sumers are divided into three segments: rebate independent, fully rebate dependent, and partially rebate dependent. Partially rebate-dependent consu- mers’ redemption probability depends on the value of www.palgrave-journals.com/rpm & 2008 Palgrave Macmillan Ltd, 1476-6930 $30.00 Vol. 7, 1 85–105 Journal of Revenue and Pricing Management 85