Purpose: The purpose of this paper is to extend the analysis of the distribution-free
newsvendor problem under the circumstance of customer balking, which usually occurs when
customers are reluctant to buy products if the available inventory falls below a threshold level.
Design/methodology/approach: A new tradeoff tool is provided as a replacement of the
traditional one to weigh the holding cost and the goodwill costs segment: apart from the
shortage penalty, the balking penalty is introduced. Furthermore, such research methodology is
employed in the case of random yield.
Findings: A model is presented for determining both an optimal order quantity and a lower
bound of the profit under the worst possible distribution of the demand. We also study the
effects of shortage penalty and the balking penalty on the bias of the optimal order quantity,
which have been largely bypassed in the existing distribution-free single period models with
balking. Numerical examples are presented to illustrate the result.
Originality/value: The incorporation of balking penalty and random yield represents an
important improvement in inventory policy performance for distribution-free newsvendor
problem when customer balking occurs and the distributional form of demand is uncertain
