Assortment Rotation and the Value of Concealment
43 Pages Posted: 31 Oct 2016 Last revised: 29 Jan 2019
Date Written: January 2019
Assortment rotation – the retailing practice of changing the assortment of products offered to customers – has recently been used as a competitive advantage for both brick-and-mortar and online retailers. We focus on product categories where consumers may purchase multiple products during a season and investigate a new reason why frequent assortment rotations can be valuable to a retailer. Namely, by distributing its seasonal catalog of products over multiple assortments rotated throughout the season – as opposed to selling all products in a single, fixed assortment – the retailer effectively conceals a portion of its full product catalog from consumers, injecting uncertainty into the consumer's relative product valuations. Rationally-acting consumers may respond to this additional uncertainty by purchasing more products, thereby generating additional sales for the retailer. We refer to this phenomenon as the value of concealment and show that the retailer enjoys a positive and significant value of concealment under quite general conditions. However, we show that when consumers are forward-looking, the value of concealment is context-dependent; we present insights and discuss intuition regarding which product categories likely lead to a positive vs. negative value of concealment.
Keywords: assortment optimization, retail, dynamic programming, imperfect information
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