Optimal retail assortments for substitutable items purchased in sets

Optimal retail assortments for substitutable items purchased in sets

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Article ID: iaor20041964
Country: United States
Volume: 50
Issue: 10
Start Page Number: 793
End Page Number: 822
Publication Date: Oct 2003
Journal: Naval Research Logistics
Authors: ,
Keywords: programming: integer
Abstract:

We consider the problem of optimizing assortments in a multi-item retail inventory system. In addition to the usual holding and stockout costs, there is a fixed cost for including any item in the assortment. Customers' preferences for items include both probabilistic substitution patterns and the desire to purchase sets of complementary items. We develop a demand model to capture this behavior, and derive tractable approximations that allow us to formulate the optimization problem as a 0–1 mixed integer linear program. Numerical examples are solved to illustrate key insights into how both complementary and substitute items affect the optimal assortment and the expected profit.

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