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Joint Optimization of Product Price, Display Orientation and Shelf-Space Allocation in Retail Category Management

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  • Murray, Chase C.
  • Talukdar, Debabrata
  • Gosavi, Abhijit

Abstract

We develop a model that jointly optimizes a retailer's decisions for product prices, display facing areas, display orientations and shelf-space locations in a product category. Unlike the existing shelf-space allocation models that typically consider only the width of display shelves, our model considers both the width and height of each shelf, allowing products to be stacked. Furthermore, as demand is influenced by each product's two-dimensional facing area, we consider multiple product orientations that capture three-dimensional product packaging characteristics. That enables our model to not only treat shelf locations as decision variables, but also retailers’ stacking patterns in terms of product display areas and multiple display orientations. Further, unlike the existing studies which consider a retailer's shelf-space allocation decisions independent of its product pricing decisions, our model allows joint decisions on both and captures cross-product interactions in demand through prices. We show how a branch-and-bound based MINLP algorithm can be used to implement our optimization model in a fast and practical way.

Suggested Citation

  • Murray, Chase C. & Talukdar, Debabrata & Gosavi, Abhijit, 2010. "Joint Optimization of Product Price, Display Orientation and Shelf-Space Allocation in Retail Category Management," Journal of Retailing, Elsevier, vol. 86(2), pages 125-136.
  • Handle: RePEc:eee:jouret:v:86:y:2010:i:2:p:125-136
    DOI: 10.1016/j.jretai.2010.02.008
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    References listed on IDEAS

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    Cited by:

    1. Rui Huang & Jeffrey Perloff, 2014. "WIC Contract Spillover Effects," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(1), pages 49-71, February.
    2. Masoud Rabbani & Navid Salmanzadeh-Meydani & Amir Farshbaf-Geranmayeh & Vahed Fadakar-Gabalou, 2018. "Profit maximizing through 3D shelf space allocation of 2D display orientation items with variable heights of the shelves," OPSEARCH, Springer;Operational Research Society of India, vol. 55(2), pages 337-360, June.
    3. Bernardo Bertoldi & Chiara Giachino & Alberto Pastore, 2016. "Strategic pricing management in the omnichannel era," MERCATI E COMPETITIVIT, FrancoAngeli Editore, vol. 2016(4), pages 131-152.
    4. Bianchi-Aguiar, Teresa & Silva, Elsa & Guimarães, Luis & Carravilla, Maria Antónia & Oliveira, José F., 2018. "Allocating products on shelves under merchandising rules: Multi-level product families with display directions," Omega, Elsevier, vol. 76(C), pages 47-62.
    5. Mou, Shandong & Robb, David J. & DeHoratius, Nicole, 2018. "Retail store operations: Literature review and research directions," European Journal of Operational Research, Elsevier, vol. 265(2), pages 399-422.
    6. Pizzi, Gabriele & Scarpi, Daniele, 2016. "The effect of shelf layout on satisfaction and perceived assortment size: An empirical assessment," Journal of Retailing and Consumer Services, Elsevier, vol. 28(C), pages 67-77.
    7. Denis Drexler & Martin Souček, 2017. "The Level of Shelves and Space Solution as One of the Key Factors for Consumer Attention," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 65(5), pages 1679-1686.
    8. Hübner, Alexander & Schaal, Kai, 2017. "A shelf-space optimization model when demand is stochastic and space-elastic," Omega, Elsevier, vol. 68(C), pages 139-154.
    9. Irion, Jens & Lu, Jye-Chyi & Al-Khayyal, Faiz & Tsao, Yu-Chung, 2012. "A piecewise linearization framework for retail shelf space management models," European Journal of Operational Research, Elsevier, vol. 222(1), pages 122-136.
    10. Zhao, Ju & Zhou, Yong-Wu & Wahab, M.I.M., 2016. "Joint optimization models for shelf display and inventory control considering the impact of spatial relationship on demand," European Journal of Operational Research, Elsevier, vol. 255(3), pages 797-808.
    11. Sorescu, Alina & Frambach, Ruud T. & Singh, Jagdip & Rangaswamy, Arvind & Bridges, Cheryl, 2011. "Innovations in Retail Business Models," Journal of Retailing, Elsevier, vol. 87(S1), pages 3-16.
    12. Flamand, Tulay & Ghoniem, Ahmed & Haouari, Mohamed & Maddah, Bacel, 2018. "Integrated assortment planning and store-wide shelf space allocation: An optimization-based approach," Omega, Elsevier, vol. 81(C), pages 134-149.
    13. Murray, Chase C. & Gosavi, Abhijit & Talukdar, Debabrata, 2012. "The multi-product price-setting newsvendor with resource capacity constraints," International Journal of Production Economics, Elsevier, vol. 138(1), pages 148-158.
    14. Eisend, Martin, 2014. "Shelf space elasticity: A meta-analysis," Journal of Retailing, Elsevier, vol. 90(2), pages 168-181.
    15. Adam, Abdulfatah & Jensen, Jørgen D. & Sommer, Iben & Hansen, Gitte L., 2017. "Does shelf space management intervention have an effect on calorie turnover at supermarkets?," Journal of Retailing and Consumer Services, Elsevier, vol. 34(C), pages 311-318.
    16. Tsao, Yu-Chung & Lu, Jye-Chyi & An, Na & Al-Khayyal, Faiz & Lu, Richard W. & Han, Guanghua, 2014. "Retailer shelf-space management with trade allowance: A Stackelberg game between retailer and manufacturers," International Journal of Production Economics, Elsevier, vol. 148(C), pages 133-144.
    17. Lin, Chen-Yu, 2015. "Conceptualizing and measuring consumer perceptions of retailer innovativeness in Taiwan," Journal of Retailing and Consumer Services, Elsevier, vol. 24(C), pages 33-41.

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