When Advertising Meets Assortment Planning: Joint Advertising and Assortment Optimization Under Multinomial Logit Model

While the topic of assortment optimization has received a significant amount of attention, the relationship between advertising and its impact on this issue has not been well-explored. This paper aims to fill the gap in research by addressing the joint advertising and assortment optimization problem. We propose that advertising can influence product selection by increasing preference for certain products, and the extent of this effect is determined by the product-specific effectiveness of advertising and the resources allocated to advertising for that product. Our goal is to find an optimal solution, which comprises of a combination of advertising strategy and product assortment, that maximizes revenue, taking into account budget constraints on advertising. In this paper, we examine the characteristics of this problem and present efficient methods to solve it under various scenarios. Both the unconstraint and cardinality constraint settings are studied and the joint assortment, pricing, and advertising problem is also examined. We further extend our findings to account for consumer decision-making patterns.