Strategic Assortment Reduction by a Dominant Retailer
Marketing Science
Dynamic Pricing and Inventory Control of Substitute Products
Manufacturing & Service Operations Management
Competitive Consequences of Using a Category Captain
Management Science
Assortment Planning and Inventory Decisions Under Stockout-Based Substitution
Operations Research
Retail Assortment Planning Under Category Captainship
Manufacturing & Service Operations Management
Manufacturing & Service Operations Management
Expert Systems with Applications: An International Journal
Product and Price Competition with Satiation Effects
Management Science
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This paper studies the assortment planning problem with multiple merchandise categories and basket shopping consumers (i.e., consumers who desire to purchase from multiple categories). We present a duopoly model in which retailers choose prices and variety level in each category and consumers make their store choice between retail stores and a no-purchase alternative based on their utilities from each category. The common practice of category management (CM) is an example of a decentralized regime for controlling assortment because each category manager is responsible for maximizing his or her assigned category's profit. Alternatively, a retailer can make category decisions across the store with a centralized regime. We show that CM never finds the optimal solution and provides both less variety and higher prices than optimal. In a numerical study, we demonstrate that profit loss due to CM can be significant. Finally, we propose a decentralized regime that uses basket profits, a new metric, rather than accounting profits. Basket profits are easily evaluated using point-of-sale data, and the proposed method produces near-optimal solutions.