The MultiNomi.lng Model

Multinomial Logit(MNL) Consumer Choice and Assortment model

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Consumer Choice portion of model:

Each market segment i has a relative preference

RP(i,j), for buying product type j. The base

"product" of buying nothing has a preference 1.

The MNL model assumes the probability of buying

product j, among the available products, is

proportional to RP(i,j).

Assortment portion of model:

Given the set of all possible products a vendor might

carry, what subset should be carried, taking into account

the consumer's preferences?

It costs money to introduce lots of products, so

given consumer preferences, product profitability, and

cost of carrying each product,

which set of products should the vendor offer?

Each segment i has a size, NUM(i), which is an upper

limit on the total unit sales to that segment.

Specifically, if the vendor carries only product j,

then the unit sales to segment i will be

NUM(i)*RP(i,j)/(1+R{i,j));

Keywords:

Marketing | Assortment Planning | Consumer Choice | Multinomial Logit | Demand Substitution |