Allocation optimization for subscription box services

Publication Date

12-14-2020

Document Type

Conference Proceeding

Publication Title

2020 IEEE International Conference on Industrial Engineering and Engineering Management (IEEM)

Volume

2020-December

DOI

10.1109/IEEM45057.2020.9309954

First Page

746

Last Page

750

Abstract

The subscription-based models are getting increasingly popular. The most well-known examples are streaming services, food services and monthly subscription boxes. This study considers a hypothetical company with subscription-based customized package as a product. In this type of systems, the demand is for the subscribed packages provided by the company based on the customer preferences, and the company needs to determine the product assortment in the package at each period. We propose two mixed integer programming models for the optimal selection of products to subscription bags while minimizing the total cost of operations or maximizing subscriber satisfaction. We compare cost and satisfaction scores of models to provide insights. We define a general framework for creating a mathematical optimization model for subscription-based services. We segment product by brand value, such as luxury, mid-tier and affordable, to create flexibility and better understand the customer satisfaction and cost. We define a success metric for satisfaction per cost to compare various scenarios with and without product segmentation. We observed that affordable products are a good way to keep the cost down and satisfaction levels adequate.

Keywords

Integer programming, Product component allocation, Subscription boxes, Subscription-based services

Department

Industrial and Systems Engineering

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