Estimating Demand Using Space Elastic Demand Model for Retail Assortment Planning

Abstract

A retailer assortment is defined as a mix of products stocked in a retail store. The identification of proper assortment has become difficult in the current consumer-centric environment. Assortment planning (AP) in a retail chain largely depends on the estimation of demand of various products under consideration. The knowledge of the true demand rates and substitution rates is important for a retailer for a variety of management decisions, such as the ideal assortment to carry, the quantum of each item to be stocked and how often to replenish the stock (Anupindi, Dada & Gupta, 1998). Space elastic demand model is one of the models which have been widely used for demand estimation in retail AP literature. However, there is paucity of empirical studies in this field of research. In this article, the demand has been estimated using space elastic demand model for two product categories comprising 11 products within the category. The study illustrates the methodology for estimation of demand using space elastic demand model. The results obtained are consistent with the results obtained in few of the empirical studies done in other contexts.