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Assortment planning and pricing with consumer searching: The role of anticipated regret
Wang, Ruibing
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Vetter, Oliver
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Schön, Cornelia
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Dokumenttyp:
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Präsentation auf Konferenz
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Erscheinungsjahr:
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2025
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Veranstaltungstitel:
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2025 INFORMS Revenue Management and Pricing Section Conference
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Veranstaltungsort:
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New York, NY
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Veranstaltungsdatum:
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14.-16.07.2025
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Verwandte URLs:
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Sprache der Veröffentlichung:
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Englisch
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Einrichtung:
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Fakultät für Betriebswirtschaftslehre > Service Operations Management (Schön 2014-)
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Fachgebiet:
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650 Management
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Abstract:
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Consumers often search for product information to resolve valuation uncertainties before purchasing. However, due to their limited information-acquisition ability, they cannot evaluate all available alternatives. As a result, they typically engage in a two-stage search process, referred to as “consider-then-choose.” In the first stage, they decide on a consideration set, which is a subset of all available alternatives. In the second stage, they resolve uncertainties about all products within this set and choose the one with the highest utility. We extend assortment optimization under consumer choice behavior by incorporating consumer anticipated regret into the consideration set formation. Specifically, after purchase, consumers may passively encounter new information, such as review videos, recommendations, or firsthand experiences. From this information, if they notice an unconsidered product is more suitable than the purchased one, they might regret having decided on a small consideration set and not devoted enough effort to searching (under-searching regret). On the other hand, if consumers do not encounter a better product outside the consideration set, they may regret having decided on a large consideration set (over-searching regret). This occurs because, while they ultimately selected the best product from the consideration set, they also spent significant time searching many alternatives that turn out to be inferior ones. They may regret this because if they decide on a smaller consideration set which still includes the best product, they could save time for more valuable activities. We show that anticipated under-searching regret can enlarge the consideration set, while anticipated over-searching regret can narrow it. Furthermore, if consumers anticipate post-purchase regret when deciding on their consideration sets, firms may benefit from offering some products that consumers will ultimately not consider and thus will not generate any revenue. Based on this finding, we reformulate the assortment problem for a homogeneous market as a structure similar to a two-dimensional knapsack problem. While no fully-polynomial approximation schemes (FPTAS) exist for standard two-dimensional knapsack problems, we develop one by leveraging the relationship between the target consideration set and the offer set. For a heterogeneous market, we develop an FPTAS for the assortment problem in two special cases and apply a conic formulation to a more general case. We also develop an exact optimization method for the joint assortment planning and pricing problem with homogeneous consumers. With minor modifications, the exact conic formulation can also be applied to solve the joint assortment planning and discrete pricing problem with heterogeneous consumers.
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