A POMDP-based Approach to Assortment Optimization Problem for Vending Machine

Abstract

Assortment optimization is one of main problems for retailers, and has been widely studied. In this paper, we focus on vending machines, which have many characteristic issues to be considered. We first formulate an assortment optimization problem for vending machines, next propose a model that represents consumer's decision making, and then show a solution method based on partially observable Markov decision process (POMDP). The problem includes incomplete state observation, stochastic consumer behavior and policy decisions that maximize future expected rewards. Using computer simulation, we observe that sales increases compared to that by heuristic methods under the same condition. Moreover, the sales approaches the theoretical upper bound.