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January 2019    Dennis R. DuBe'     702/3834

0. Shelf Space Allocation and Profit Maximization in Mass Retailing
          Ronald C. Curhan #3834   Created 04/22/2016   Updated 04/22/2016

Associate professor of marketing in the College of Business Administration, Boston University.

Journal of Marketing, Vol. 37 (July 1973), pp. 54-60

Selling space per store.....also has increased, but not in proportion to increases ins the number of items these stores handle, and certainly no in proportion to increases in the number of products offered to the trade. 54

Although not always stated explicitly, most experiments have involved investigation of space elasticity of demand. Space Elasticity may be defined as the ratio of relative change in unit sales to relative change in shelf space. Shelf space is most often measured in terms of display area. 55

Implicit in most experimental studies is a conceptual model that assumes decreasing marginal returns. ... as shelf space is increased, unit sales will increase at a decreasing rate until some maximum sales level is reached. (cite 2) This implies a curvilinear relationship...

Brown and Tucker have identified three classes of products, as follows: 1. "Unresponsive Products," such as salt, spices, canned fruit, and canned vegetables, classically considered relatively price inelastic; II. "General Use Products," such as breakfast foods, canned fruit, and canned vegetables, for which the effects of space were considered "fairly strong for minimum amounts of space, but . . . the point of diminishing return occurs fairly early. III. "Occasional Purchase Products," such as sardines and canned nuts, which are "unlooked for" by most housewives. This latter class of products was categorized as responding slowly to shelf space increases "until the display was large enough to force its attention on the shopper," at which point the "sales curve might rise steeply to reach its point of diminishing returns at fairly large amounts ( perhaps impractically large amounts) of shelf space." (Note that this implies the existence of a step-function or "threshold effect" for shelf space.) (cite 4)


[ note they were classified as to their usage by consumers ]

"...the opportunity for product substitutibility probably was much greater for toothpaste, Band Ads, and mouthwash than for suppositories." (cite 7)


The Colonial Study reported, for example, that sales from "waist-level" shelves were only 74% as great, and sales from "floor-level" shelves only 57% as great as sales from equivalent space allocations on "eye-level" shelves." 56 (cite 11)

In any event, percentage unit sales changes seem to be only fractionally as great as percentage shelf space changes. 57

In general , shelf spece changes seem, to affect sales more in larger stores than in smaller. (cite 13) 57

"...the impact on unit sales of changes in shelf space is very small relative to the effects of variables other than shelf space!" 57

Indeed, mass merchandisers sometiems sell goods for case before they pay for them, in which case conventional return on investment calculations are meaningless. (cite 16) 57

Results suppoort the hypothesis that, in many instances, profitability can be increased over prevailoing levels by shifting spce from, or eliminating entirely, relatively low profit items and assigning the space to relatively high profit items. Profit increases obviously are dependent on the quality of space allocation existing prior to the reaqllocation and on the space elasticity of the items involved. 58


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