Optimal product positioning with consideration of negative utility effect on consumer choice rule

Authors:
X. G. Luo;C. K. Kwong;J. F. Tang;Y. L. Tu
Affiliations:
Department of Systems Engineering, State Key Lab of Synthetic Automation of Process Industries, Northeastern University, Shenyang, PR China and Department of Industrial and Systems Engineering, Th ...;Department of Industrial and Systems Engineering, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, PR China;Department of Systems Engineering, State Key Lab of Synthetic Automation of Process Industries, Northeastern University, Shenyang, PR China;Department of Mechanical and Manufacturing Engineering, University of Calgary, 2500 University Drive, NW, Calgary, Alberta, Canada
Venue:
Decision Support Systems
Year:
2012

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Abstract

In most studies related to product positioning, probabilistic consumer choice rules assume that a product always gains some market share no matter how small a product's utility value is or even if the utility value is negative. Some researchers have considered this problem in multidimensional-scaling-based model or share-of-surplus choice rule. In this study, we consider this problem for multinomial logit rule by introducing a piecewise function and establishing a conjoint-analysis-based one-step optimization model for product positioning. Interval analysis is applied to obtain the optimal price of the new product from the model, and the mathematical properties of the profit-maximizing model are analyzed. An interval-analysis-embedded Tabu Search (TS) algorithm is developed for solving the model. An industrial application employing the proposed model and the interval-analysis-based enumeration method is presented and sensitivity analysis is performed. An experiment for randomly created large-scale product positioning problems is carried out to evaluate the feasibility of the proposed TS algorithm.