When to Carry Eccentric Products? Optimal Retail Assortment under Consumer Returns

Alptekinoğlu, Aydın; Grasas, Alex

doi:10.2139/ssrn.1809198

Cited by 6 publications

(1 citation statement)

References 29 publications

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“…Bernstein et al (2011) explore the impact of component commonality on assortment decisions. Grasas et al (2009) explore the impact of product returns. Aydin and Porteus (2008) optimize inventory levels and prices for multiple products in a given assortment.…”

Section: Introductionmentioning

confidence: 99%

Optimal and Competitive Assortments with Endogenous Pricing Under Hierarchical Consumer Choice Models

Kok

2011

Management Science

123

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This paper studies assortment planning and pricing for a product category with heterogeneous product types from two brands. We model consumer choice using the nested multinomial logit framework with two different hierarchical structures: a brand-primary model in which consumers choose a brand first, then a product type in the chosen brand, and a type-primary model in which consumers choose a product type first, then a brand within that product type. We consider a centralized regime that finds the optimal solution for the whole category and a decentralized regime that finds a competitive equilibrium between two brands. We find that optimal and competitive assortments and prices have quite distinctive properties across different models. Specifically, with the brand-primary model, both the optimal and the competitive assortments for each brand consist of the most popular product types from the brand. With the type-primary choice model, the optimal and the competitive assortments for each brand may not always consist of the most popular product types of the brand. Instead, the overall assortment in the category consists of a set of most popular product types. The price of a product under the centralized regime can be characterized by a sum of a markup that is constant across all products and brands, its procurement cost, and its marginal operational cost, implying a lower price for more popular products. The markup may be different for each brand and product type under the decentralized regime, implying a higher price for brands with a larger market share. These properties of the assortments and prices can be used as effective guidelines for managers to identify and price the best assortments and to rule out nonoptimal assortments. Our results suggest that to offer the right set of products and prices, category and/or brand managers should create an assortment planning process that is aligned with the hierarchical choice process consumers commonly follow to make purchasing decisions. This paper was accepted by Pradeep Chintagunta and Preyas Desai, special issue editors. This paper was accepted by Pradeep Chintagunta and Preyas Desai, special issue editors.assortment planning, product variety, category management, pricing, inventory costs, nested multinomial logit model

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Section: Introductionmentioning

confidence: 99%

Optimal and Competitive Assortments with Endogenous Pricing Under Hierarchical Consumer Choice Models

Kok

2011

Management Science

123

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Optimal Online Service Strategy and Price Decision in Omnichannel Retail

Chen

et al. 2022

Mathematical Problems in Engineering

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As a new emerging sales promotion tool, various types of online services are increasingly adopted by firms to improve consumers’ satisfaction and then increase profit. This paper simulates a two-echelon supply chain where a supplier sells the product through an offline or online retailer. Online channel is characterised by direct selling and reselling. We consider three online service strategies: no online service and preemptive and reactive online service. Several results are obtained. We find that investing in online services can benefit all players in most scenarios more than no-service scenario. In the direct selling case, the offline retailer benefits the most from the reactive service strategy due to the webrooming effect, whereas the supplier performance is best in the preemptive service strategy. However, in the reselling case, we find that the supplier and the online and offline retailers benefit the most from reactive service strategy. Furthermore, we compare the prices and service levels of the three strategies and find that the webrooming effect coefficient can affect the optimal wholesale price, retail prices, and online service level. Finally, the findings indicate that the supplier’s choice of the two cases depends on the fixed cost of the online channel.

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When to Carry Eccentric Products? Optimal Retail Assortment under Consumer Returns

Alptekinoğlu

Grasas

2012

SSRN Journal

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To understand whether retailers should consider consumer returns when merchandising, we study how the optimal assortment of a price-taking retailer is influenced by its return policy. The retailer selects its assortment from an exogenous set of horizontally differentiated products. Consumers make purchase and keep/return decisions in nested multinomial logit fashion. Our main finding is that the optimal assortment has a counterintuitive structure for relatively strict return policies: It is optimal to offer a mix of the most popular and most eccentric products when the refund amount is sufficiently low, which can be viewed as a form of risk sharing between the retailer and consumers. In contrast, if the refund is sufficiently high, or when returns are disallowed, optimal assortment is composed of only the most popular products (a common finding in the literature). We provide preliminary empirical evidence for one of the key drivers of our results: more eccentric products have higher probability of return -conditional on purchase. In light of our analytical findings and managerial insights, we conclude that retailers should take their return policies into account when merchandising.

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When to Carry Eccentric Products? Optimal Retail Assortment under Consumer Returns

Cited by 6 publications

References 29 publications

Optimal and Competitive Assortments with Endogenous Pricing Under Hierarchical Consumer Choice Models

Optimal and Competitive Assortments with Endogenous Pricing Under Hierarchical Consumer Choice Models

Optimal Online Service Strategy and Price Decision in Omnichannel Retail

When to Carry Eccentric Products? Optimal Retail Assortment under Consumer Returns

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