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Consumer Choice and Assortment model, (ProdPortStrict.lng)
with consumer strict preference order. Choose a product
portfolio, taking into account consumer preferences.
1) Consumer Choice portion of model: Each market segment i has preference RP(i,j), for buying product type j. Consumer i buys that product j for which: j is offered, and i's preference for j is higher than for any other offered product, and RP(i,j) > 0.
2) 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 we want to offer a product only if profitable to do so. Each segment i has a size, NUM(i), the total unit sales to that segment if it buys. Specifically, if the vendor carries only product j, then the unit sales to segment i will be NUM(i) if RP(i,j) > 0, else 0;
This model takes into account that adding more products may help by capturing demand otherwise going to a competitor, but may hurt by "cannibalizing" sales of one of our more profitable products;