692 / 2024-05-13 10:28:01

Product Display Optimization with Quality Uncertainty and Return

Display Quality,Product Return,Pricing,Assortment Planning,Multinomial Logit Model

Display quality refers to product information such as the images and textual descriptions of product quality presented to consumers shopping online, and can directly influence market demand during the sales phase and product returns during the after-sales phase. In this paper, we investigate the product display optimization problems on display quality, pricing, and assortment planning, in consideration of product quality uncertainty and consumers' return behavior. We employ the widely used multinomial logit (MNL) model to characterize the impact of display quality on consumer choices. In particular, we incorporate display quality into the utility function under the MNL model and characterize online consumers' purchase and return behavior that is largely affected by display quality. We then conduct joint optimization analysis on assortment planning, display quality, and pricing. Comparative statics elucidates the relationship between pricing and display quality decisions. Surprisingly, we reveal that higher product price does not necessarily lead to higher display quality unlike the classical MNL model. Then we propose an efficient method to determine the optimal offer set that involves assessing whether the conservative retention rate of a product exceeds 0. Because of its high impact on both early market demand and later consumer return behavior, display quality alters the pricing and assortment planning structure of the retailer. Moreover, we find that optimizing display quality presents an opportunity to achieve a win-win outcome for both the retailer and consumers, which could serve as a reference for market regulation.