P2V-MAP: Mapping Market Structures for Large Retail Assortments

The authors propose a new, exploratory approach for analyzing market structures that leverages two recent methodological advances in natural language processing and machine learning. They customize a neural network language model to derive latent product attributes by analyzing the co-occurrences of products in shopping baskets. Applying dimensionality reduction to the latent attributes yields a two-dimensional product map. This method is well-suited to retailers because it relies on data that are readily available from their checkout systems and facilitates their analyses of cross-category product complementarity, in addition to within-category substitution. The approach has high usability because it is automated, is scalable and does not require a priori assumptions. Its results are easy to interpret and update as new market basket data are collected. The authors validate their approach both by conducting an extensive simulation study and by comparing their results with those of state-of-the-art, econometric methods for modeling product relationships. The application of this approach using data collected at a leading German grocery retailer underlines its usefulness and provides novel findings that are relevant to assortment-related decisions.