Offline Assortment Optimization in the Presence o an Online Channel

Firms are increasingly selling through both offline and online channels, allowing customers to experience the touch and feel of product attributes before purchasing those products. Consequently, the selection of products offered offline affects the demand in both channels. We address how firms should select an optimal offline assortment to maximize profits across both channels; we call this the showcase decision problem. We incorporate the impact of physical evaluation on preferences into the consumer demand model. Under this model, we show that the decision problem is NP-hard. Analytically, we derive optimal results for special cases and near-optimal approximations for general cases. Empirically, we use conjoint analysis to identify changes in consumer preferences resulting from physically evaluating products. For this application, we demonstrate gains in expected revenue of up to 40% due to accounting for the impact of offline assortment on the online sales.