<p>The right assortment can make or break a retailer’s business. Assortment optimization is no longer a simple matter of stocking shelves with popular items. The retailer aims to satisfy the demand of the broadest possible customer base while keeping the cost low—by narrowing the product range. In this paper, we present an algorithm for efficient product range reduction. In addition, we propose several metrics to measure the mutual substitutability of pairs of products. We define two products to be substitutable if a customer is willing to take one product instead of the other. The proposed substitution methodology results are then utilized to reduce the overall assortment using a diminishing-returns-based range reduction approach. In an empirical study of a retail chain, we demonstrate our methodology’s properties and verify its usability. Our heuristic approach provides swift, computationally efficient, and meaningful insights into the market structure. Therefore, it can support in the assortment optimization process.</p>