A Model and Case Study for Efficient Shelf Usage and Assortment Analysis

In the rapidly changing environment of Fast Moving Consumer Goods sector where new prod-uct launches are frequent, retail channels need to reallocate their shelf spaces intelligently while keeping up their total profit margins, and to simultaneously avoid product pollution. In this paper we propose an optimization model which yields the optimal product mix on the shelf in terms of profitability, and thus helps the retailers to use their shelves more effectively. The model is applied to the shampoo product class at two regional supermarket chains. The results reveal not only a computationally viable model, but also substantial potential increases in the profitability after the reorganization of the product list. Key words: retailing, assortment optimization, demand substitution.