Robust assortment optimization under sequential product unavailability

Saharnaz Mehrani and Jorge A. Sefair

European Journal of Operational Research, 2022, vol. 303, issue 3, 1027-1043

Abstract: Assortment planning is a central piece in the revenue management strategy of every retail company. In this paper, we study a robust assortment optimization problem for substitutable products under a sequential ranking-based choice model and a cardinality constraint. Our choice model captures the increasing customer frustration of finding multiple products unavailable as a factor affecting purchasing decisions. To model the highly uncertain order in which a customer explores the products to buy, we present a bi-level optimization approach to maximize the expected revenue assuming that the customer visits a sequence of unavailable products that minimizes the likelihood of staying in the store. We show that the resulting problem is NP-hard and develop exact and greedy solution approaches that can solve different instances efficiently in terms of both solution time and optimality gap. We develop a model extension that includes multiple customer categories and also show a special case of the problem that can be solved in polynomial time. We perform a computational study to demonstrate the performance of our methods and illustrate the sensitivity of the optimal assortment to variations in the input parameters.

Keywords: Retailing; Assortment planning; Ranking-based choice model; Multinomial logit choice model; Robust optimization (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:303:y:2022:i:3:p:1027-1043

DOI: 10.1016/j.ejor.2022.03.033

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