Product Proliferation and the Determination of Slotting and Renewal Allowances

Abstract

We examine the roles of slotting and renewal allowances in the allocation

of scarce retail shelf space. Several contrasting features of the two shelf

allocational mechanisms are shown.

With slotting allowances, manufacturers can signal the profitability of new

products and retailers can screen out the least profitable products. With renewal

allowances in a full information context, manufacturers can induce

retailers to carry their less profitable products, illustrating a "push" approach

to attaining shelf placement: manufacturers of product that enjoy

strong consumer "pull* obtain shelf placement without paying renewal

allowances. In both cases, product proliferation results in higher slotting and

renewal allowances by raising the opportunity cost of shelf space. However,

as countervailing leverage against retailers, manufacturers of successful

product lines can use their successful products to help attain placement for

their relatively weak products.