/* ---- Google Analytics Code Below */

Wednesday, December 05, 2012

IBM/DemandTec Assortment Optimization

Early in my career I was given the task of how to optimize assortments under the constraints of the market shelf. On the surface the problem looks easy.  You have a set of possible products you want to place on shelf.  You have the value of each of the products to the manufacturer or retailer expressed by profit or historical demand, you have the constraints of space on the shelf.  You may also have design constraints that tell you what products 'should' be placed next to others based on consumer behavior understanding.   Plus a lot of additional and sometimes subtle constraints.  All this can be expressed mathematically, using well known methods that have been known for a long time.  But it turns out the resulting expression is complex and difficult to solve.   We explored how to do this and found it daunting.  So I was very impressed when I first saw an example of how DemandTec did assortment optimization for retailers.  Their method cuts to the chase to increase profitability for retailers based on historical demand while also including the shopper in the model.  They write:

" ... No more guesswork.  The best assortment for each location. The best assortment is the one shoppers expect to see on your shelves, but also the one that delivers the best profits.  So why make guesses? IBM DemandTec Assortment Optimization offers a collaborative approach for defining localized merchandise assortments through a complete understanding of what drives buying decisions – incorporating shopper demand, space, productivity, and profitability. .... Now you can offer items that meet unique demands or targeted shopper segments.  You'll know exactly which items you can replace or substitute for other items in your portfolio.  Most importantly, you'll understand the implications of various assortments on each customer segment. With one common view of the shopper, their decision trees, and the marginal additional value of each SKU to the equation, manufacturers and retailers can work together more effectively to delight shoppers and build customer loyalty. ... " 

No comments: