Essays on Retail Operations

This dissertation consists of two essays, each focusing on an important topic in retail operations. These topics are each summarized below.

In the first essay, we investigate the optimal pricing and package size decisions of a retailer selling a perishable product either in packages or in bulk. Bulk sale is defined as selling the product in a container (instead of packages) that allows customers to buy as much or as many as they want. We analyze how adding a bulk sale option affects the optimal decisions, when it is optimal to offer the product in package/bulk and when it is optimal to offer both at the same time. We also investigate implications of the pricing and package size decisions as well as the bulk sale option on the food waste at the consumer level. According to our results, when the market is homogeneous, selling the product in packages instead of bulk gives twice more profit to the retailer but it also gives twice more relative waste. When the market is heterogeneous with two consumer segments, adding a bulk sale option could increase expected profit up to 12 percent and could decrease relative waste up to 8 percent.

In the second essay, we work on the multi-period assortment problem for a retailer with variety-seeking/avoiding consumers. If consumers are variety-seeker, they are not likely to buy the same product in two subsequent periods. If customers are variety-avoidant, their probability of repeat purchase is high. We assume that each consumer‘s variety seeking/avoiding tendency is characterized by a parameter V ∈ [−1, 1]. In our analysis, we consider two different firm types which we call the Dynamic and the Static firms. The Dynamic firm optimizes the profit over the entire horizon by changing (if necessary) the assortment offered in each period dynamically, whereas the static firm has to decide one assortment to offer throughout the horizon. We provide some structural results for the finite and infinite horizon versions of the problem. We show that the existence of variety seeking/avoiding behavior decreases the retailer‘s profit. For the infinite horizon problem, we show that the static firm’s optimal assortment is a popular-eccentric set and for some cases repeating to cycle between two assortment yields more profit than offering the same in each period.