Optimal Joint Assortment for an Omni-Channel Retailer

Abstract

With the growing popularity of e-commerce, nearly every prominent retailer is aiming to turn omni-channel. One crucial decision in this pursuit is the identification of the joint assortment. In this study, we contribute by examining joint assortment and product prices for a retailer that sells products through both brick-and-mortar and online channels. Our analysis indicates that the optimal assortment should be thought of as a portfolio of two types of products: customized and omni-channel. Customized products are priced in such a way that they are targeted toward customers who prefer to shop from the channel the products are sold through. In contrast, omni-channel products are priced attractively so that all customers consider buying them. The relative mix of these products depends on how flexible customers are in shopping from the channel they do not prefer and the number of customers who prefer each channel. Additionally, we investigate whether the conventional wisdom of selling niche products through the online channel is always optimal. We find that this suggestion may be sub-optimal when the online channel has greater cost of including a product in the assortment and fewer preferring customers compared with the brick-and-mortar channel.