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Practice Prize Paper ---Category Optimizer: A Dynamic-Assortment, New-Product-Introduction, Mix-Optimization, and Demand-Planning System

Author

Listed:
  • Ashish Sinha

    (School of Marketing, Australian School of Business, University of New South Wales, Sydney, New South Wales 2052, Australia)

  • Anna Sahgal

    (AS Marketing Associates, Sydney, New South Wales 2121, Australia)

  • Sharat K. Mathur

    (Symphony IRI Group, Chicago, Illinois 60661)

Abstract

The purpose of this paper is to describe the implementation of a category management tool known as Category Optimizer™ at Foster's Wine Estates Americas for one of its brands, the Beringer California Collection. Foster's was facing a common management problem: harnessing its portfolio of Beringer California Collection wines to increase profitability, improve its competitive position, and defend against a disruptive new entrant in the U.S. wine market called Yellow Tail. Category Optimizer combines the parsimony of an internal market structure with the advances that have been made in assortment planning in operations research , assortment and stock-keeping-unit--level modeling , mixed logits , and the marketing literature on the perceptions of variety of assortment to develop and estimate a model on readily available store scanner data. The model subsequently uses these results to inform strategic and tactical decision making. This approach led to recommendations that initially seemed counterintuitive; the normal response would be for Foster's to consider lowering prices to maintain share and volume, a strategy not inconsistent with many of the recommendations of past models. However, considering the additional degrees of freedom that a product range offered for defense, we demonstrated that a combination of price increases together with the introduction of a volume-flanker product in a new channel would improve profits, increase revenue, and protect and enhance market share. These were successfully implemented in early 2008, earning rich dividends for the company; increasing profitability by 70%, revenue by 3%, and earnings before interest and taxes by 8.5%; and having a positive impact on its brand ranking. In fact, in 2008, it debuted as sixth among the international wine brands. It also managed to play an important role in deposing Yellow Tail, the market share leader, from its dominant position. We conclude the paper by providing examples of other companies where this approach has also been successfully implemented and by discussing some avenues for future research.

Suggested Citation

  • Ashish Sinha & Anna Sahgal & Sharat K. Mathur, 2013. "Practice Prize Paper ---Category Optimizer: A Dynamic-Assortment, New-Product-Introduction, Mix-Optimization, and Demand-Planning System," Marketing Science, INFORMS, vol. 32(2), pages 221-228, March.
    • Handle: RePEc:inm:ormksc:v:32:y:2013:i:2:p:221-228
    DOI: 10.1287/mksc.1120.0746
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    References listed on IDEAS

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    2. Irina V. Burlakova & Dmitry A. Karkh & Lyudmila S. Ruzhanskaya, 2019. "Applying category management in procurement in manufacturing companies," Upravlenets, Ural State University of Economics, vol. 10(6), pages 54-66, December.
    3. Gary L. Lilien & John H. Roberts & Venkatesh Shankar, 2013. "Effective Marketing Science Applications: Insights from the ISMS-MSI Practice Prize Finalist Papers and Projects," Marketing Science, INFORMS, vol. 32(2), pages 229-245, March.
    4. Adam N. Smith & Jim E. Griffin, 2023. "Shrinkage priors for high-dimensional demand estimation," Quantitative Marketing and Economics (QME), Springer, vol. 21(1), pages 95-146, March.
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    6. 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.
    7. Robert P. Rooderkerk & Harald J. van Heerde & Tammo H. A. Bijmolt, 2013. "Optimizing Retail Assortments," Marketing Science, INFORMS, vol. 32(5), pages 699-715, September.

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