Optimizing Retail Assortments

Abstract

Retailers face the problem of finding the assortment that maximizes category profit. This is a challenging task because the number of potential assortments is very large when there are many stock-keeping units (SKUs) to choose from. Moreover, SKU sales can be cannibalized by other SKUs in the assortment, and the more similar SKUs are, the more this happens. This paper develops an implementable and scalable assortment optimization method that allows for theory-based substitution patterns and optimizes real-life, large-scale assortments at the store level. We achieve this by adopting an attribute-based approach to capture preferences, substitution patterns, and cross-marketing mix effects. To solve the optimization problem, we propose new very large neighborhood search heuristics. We apply our methodology to store-level scanner data on liquid laundry detergent. The optimal assortments are expected to enhance retailer profit considerably (37.3%), and this profit increases even more (to 43.7%) when SKU prices are optimized simultaneously.

Product Assortment and Price Competition under Multinomial Logit Demand

“…We also refer the reader to Rooderkerk et al. () and references therein for a recent study of attribute‐based assortment optimization.…”

Category Captainship in the Presence of Retail Competition

“…Category management research indicates that assortment (i.e., the set of products a retailer carries) and category presentation play important roles in determining a retailer's category performance (for a review, see Bauer et al 2012). Specifically, carrying a large assortment makes it more likely for consumers to find a product that matches their needs (Boatwright and Nunes 2001), but also increases a retailer's operational costs (Rooderkerk et al 2013). In addition, factors such as the amount of shelf space devoted to the category, shelf space layout, visual appeal of the category display, category signage, and consumers' degree of familiarity with the category shape consumers' perceptions of category presentation, which in turn influences consumer demand (e.g., Baker et al 2002, Broniarczyk et al 1998, Dreze et al 1995, Inman et al 1997.…”

Demand Forecast in Retail Assortment Optimization—Based on an Empirical Analysis of Beverage Sales

“…In the planning of product assortment, retailers need to consider the demand estimation of each stock-keeping unit (SKU) in a category and the price to get the expected revenue. The goal of retail assortment optimization is to maximize the revenue, which is the profit or the net profit after minus the cost of the store (Robert, Harald, & Tammo, 2013). Many retailers are exploring how to improve assortment localization for stores or similar store groups.…”

“…Moreover, the concept of geographical space is added to the local taste to consider the needs of regional consumers served by stores in a particular location. Assuming that the consumer's choice of goods is based on their preference for attributes of goods, thus, the local taste can be viewed as a preferred attribute of local consumers (Robert, Harald, & Tammo, 2013). At the same time, the possibility of substitution between similar goods does exist.…”