Abstract This paper considers order pricing policy in make to order firms which customer may cancel order after order placement. Customers arrive to the firm and ask the price. If the price is acceptable, he places the order, otherwise he leaves. The customer acceptance probability model is introduced, and the optimal price which maximizes the expected profit is gained. Then the sensitivities of all parameters are analyzed. The optimal price is increasing with the number of backlog orders, and decreasing with the order cancellation probability and the order cancellation penalty ratio. While the maximal expected profit is decreasing with the number of backlog orders, and increasing with the order cancellation penalty ratio. Through the numerical example, we draw a conclusion that pricing decision without considering the order cancellation will decrease the maximal expected profit in make to order firms.
2012, Vol. 9 
