Joint pricing,assortment, and inventory decisions for a retailer's product line |
| |
Authors: | Bacel Maddah Ebru K. Bish |
| |
Affiliation: | 1. Engineering Management Program, American University of Beirut, P.O. Box 11‐0236, Riad El Solh, Beirut 1107 2020, Lebanon;2. Grado Department of Industrial and Systems Engineering (0118), 250 Durham Hall, Virginia Tech, Blacksburg, VirginiaGrado Department of Industrial and Systems Engineering (0118), 250 Durham Hall, Virginia Tech, Blacksburg, Virginia |
| |
Abstract: | Consider a set of product variants that are differentiated by some secondary attributes such as flavor, color, or size. The retailer's problem is to jointly determine the set of variants to include in her product line (“assortment”), together with their prices and inventory levels, so as to maximize her expected profit. We model the consumer choice process using a multinomial logit choice model and consider a newsvendor type inventory setting. We derive the structure of the optimal assortment for some important special cases, including the case of horizontally differentiated items, and propose a dominance relationship for the general case that simplifies the search for an optimal assortment. We also discuss structural properties of the optimal prices. Finally, motivated by our analytical results, we propose a heuristic solution procedure, which is shown to be quite effective through a numerical study. © 2007 Wiley Periodicals, Inc. Naval Research Logistics, 2007 |
| |
Keywords: | discrete choice models product variety joint pricing and inventory marketing/operations interface multi‐item newsvendor |
|
|