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Joint assortment and inventory optimization for vertically differentiated products under consumer-driven substitution

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  • Transchel, Sandra
  • Buisman, Marjolein E.
  • Haijema, Rene

Abstract

This paper presents a solution approach to the joint assortment and inventory planning problem for vertically differentiated products considering dynamic consumer-driven substitution. The demand for each product and the stockout-based substitution rates are derived from a consumer’s utility function and a random market size. We propose a two-step integral solution approach, which uses the substitution characteristic of vertically differentiated products. In a first step, the approach determines the initial purchasing probabilities of all potential products and the substitution rate matrices for all possible product-availability combinations. In a second step, the inventory levels are determined by iteratively solving a sequence of two-product problems.

Suggested Citation

  • Transchel, Sandra & Buisman, Marjolein E. & Haijema, Rene, 2022. "Joint assortment and inventory optimization for vertically differentiated products under consumer-driven substitution," European Journal of Operational Research, Elsevier, vol. 301(1), pages 163-179.
    • Handle: RePEc:eee:ejores:v:301:y:2022:i:1:p:163-179
    DOI: 10.1016/j.ejor.2021.09.041
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