PROMOTION OPTIMIZATION IN COMPETITIVE ENVIRONMENTS BY CONSIDERING THE CANNIBALIZATION EFFECT
Keywords:Competitive environment, Promotion, Cannibalization effect, Mixed integer linear programming
This study proposes a new model to optimize sales promotion in competitive markets and examines the impact of competition on sales promotion planning and business performance in retail chains. The model can be used to determine the best promotional discount for different products with a cannibalization effect when competitors are present in the retail market and offer the same products with different discounts. An integer nonlinear programming problem is proposed to model the above issue. To solve the model, it is reformulated as a mixed-integer linear programming problem. Consequently, a MIP solver can be used to solve the model in a reasonable CPU time. Several examples are solved and a sensitivity analysis of the model parameters is performed. The results of our numerical study show interesting findings that considering different competitors is very important in promotion planning and optimization. Failure to take them into account can lead to loss of profits.
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