A Discrete Optimization Model for Seasonal Merchandise Planning STEPHEN A SMITH Santa Clara University NARENDRA AGRAWAL Santa Clara University SHELBY H. MCINTYRE Santa Clara University Buyers in retail chains typically plan promotional markdowns and accompanying adver- tising for the complete season, subject to budgetary and scheduling constraints. Because of the large number of possible alternatives and the difficulty of predicting the sales responses to novel plans, promotional plans are currently prepared through trial and error, by modifying previous years' plans. This paper proposes a methodology for devel- oping an optimal promotional plan that maximizes total season profit, subject to promotional resource constraints and a set of possible market scenarios, by selecting from a discrete set of candidate ads and markdowns. The benefit of the optimization model is illustrated by applying it to promotional data from a major department store chain and comparing the results to plans previously implemented by the buyers. Stephen A. Smith, Professor of Operations and MIS, Santa Clara University, 500 El Camino Real, Leavey School of Business, Santa Clara CA 95053 <ssmith@mailer.scu.edu>; Narendra Agrawal, Assistant Professor of Opera- tions and MIS, Santa Clara University, 500 El Camino Real, Leavey School of Business, Santa Clara CA 95053 <nagrawal@mailer.scu.edu>; Shelby H. Mclntyre, Professor of Marketing, Santa Clara University, 500 El Cam- ino Real, Leavey School of Business, Santa Clara CA 95053 <smcintyre@mailer.scu.edu>. Journal of Retailing, Volume 74(2), pp. 193-221, ISSN: 0022-4359 Copyright © 1998 by New York University. All rights of reproduction in any form reserved. 193