Product substitution in different weights and brands considering customer segmentation and panic buying behavior

Abstract

Due to recent supply disruptions, there has been a rapid increase in panic buying. This study considers a wholesaler selling two brands of a product with multiple weights and produced by different manufacturers to multiple retailers. The products are substituted based on weight (same brand) and a competitor’s brand over two periods. In the first period (panic situation), the wholesaler attempts to retain the inventory to satisfy the retailer. In the second period (supply disruption), retailers are willing to accept the substitute products. The wholesaler segregates the retailers into high and low indexed customers, where the high indexed retailers (provide higher profit) order greater quantities than the low indexed retailers. The objective of this model is to determine the optimal numbers for ordering quantities and substitutions to maximize total profit. Moreover, supply disruption for both single and multiple brands is analyzed, along with the influence of different degrees of supply disruption and panic rate on decisions and profits. Finally, we compare the models with and without customer-segmented substitution and brand substitution. In addition, other model extensions are discussed, such as an increase in the price in the second period.