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Sequence Matters: Shelf‐Space Allocation under Dynamic Customer‐Driven Substitution
Author(s) -
Gilland Wendell G.,
Heese H. Sebastian
Publication year - 2013
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/j.1937-5956.2012.01389.x
Subject(s) - stockout , profitability index , sequence (biology) , substitution (logic) , space (punctuation) , computer science , business , product (mathematics) , industrial organization , marketing , operations research , mathematics , genetics , geometry , finance , biology , programming language , operating system
Customers who face a stockout situation often decide to purchase a different product in the same category. We analyze the resulting dynamic substitution problem in a retail environment, where customers serve themselves from the store shelves, such that the sequence of customer arrivals affects how scarce products are allocated to customers. We consider a setting with constrained shelf space, and we study how a retailer should optimally allocate such space between substitute products. We characterize environments where the sequence of customer arrivals can have a substantial impact on profitability.