New product introductions, slotting allowances, and retailer discretion

Desiraju, Ramarao
September 2001
Journal of Retailing;Fall2001, Vol. 77 Issue 3, p292
Academic Journal
Retailers are frequently confronted with large numbers of introductions in a wide variety of categories. Slotting allowances is used by retailers to embrace these introductions. These allowances are the controversial fees charged by retailers to allow shelf space for new products. These fees are usually quite high, and retailers use several methods for determining the magnitude of slotting allowances. The bulk of the retailers seem to fall into one of two groups. The first group asks a "uniform" fee for any introduction, while the second group bases its fee on a product-by-product or a "brand-by-brand" basis. The paper examines whether there are any strategic advantages to either of these methods. It is clear from the analysis that the uniform method and the brand-by-brand method offer different benefits for the retailer. The first method allows the retailer to obtain higher allowances, whereas the second allows the retailer to enjoy the success of any reasonable new introduction. Since product success can never be perfectly predicted at the outset, retailers need to weigh these two considerations in deciding when and how to allocate shelf-space.


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