Private labels and retail assortment planning: a differential evolution approach

Despite the longstanding recognition of the importance of product assortment planning (PAP), existing literature has failed to provide satisfactory solutions to a great deal of problems that reside in this area of research. The issue of optimal assortment planning in the retail sector becomes even more important in periods of economic crisis, as retailers must adapt their product portfolios to new evolving patterns of consumer buying behaviour and reduced levels of consumer’s purchasing power. Private labels (PLs) typically experience significant growth in times of recession, due to their low prices, and the reduced disposable income of households. In this direction, the present paper introduces Differential Evolution (DE) to assist retailers in adapting their product portfolios in periods of economic recession and facilitate strategic PAP decisions, related to a) optimal variety of PL product categories, b) optimal service level of PL merchandise within a product category, and hence, c) optimal balance between PLs and National Brands (NBs) in a retailer’s product portfolio. The interrelated issue of assortment adaptation across different store formats is also considered. Economic recessions contribute to the prolonged upward evolution in PL share, and hence, our mechanism facilitates decisions that are nowadays more important than ever before. The proposed mechanism is illustrated through an implementation to an empirical dataset derived from a random sample of 1,928 consumers who participated in a large-scale computer assisted telephone survey during the current economic crisis period.