space_mgt_rev_6.1

space_mgt_rev_6.1 - Shelf Management and Space Elasticity...

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Shelf Management and Space Elasticity Xavier Drèze Stephen J. Hoch Mary E. Purk Graduate School of Business The University of Chicago January 1994 Revised July 1994 Last Revision November 1994 The authors would like to thank Dominick's Finer Foods, Information Resources Inc., and Market Metrics for their assistance and provision of data. We also thank Bob Bycraft, Byung-Do Kim, Alan Montgomery and Keyyup Lee for their help in analyzing the data. Special thanks to Linus Schrage for modifying LINGO to handle larger data sets. Xavier Drèze is Director of MIS and a doctoral student, Stephen J. Hoch is Robert P. Gwinn Professor of Marketing and Behavioral Science, and Mary E. Purk is Manager of the Micro- Marketing Project, all at the University of Chicago.
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Abstract Shelf management is a difficult task in which rules of thumb rather than good theory and hard evidence tend to guide practice. Through a series of field experiments, we measured the effectiveness of two shelf management techniques: "space-to-movement", where we customized shelf sets based on store-specific movement patterns; and "product reorganization" where we manipulated product placement to facilitate cross-category merchandising or the ease of shopping. We found modest gains (4%) in sales and profits from increased customization of shelf sets and 5-6% changes due to shelf reorganization. Using the field experiment data, we modeled the impact of shelf positioning and facing allocations on sales of individual items. We found that location had a large impact on sales, whereas changes in the number of facings allocated to a brand had much less impact as long as a minimum threshold (to avoid out-of- stocks) was maintained.
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3 Shelf Management and Space Elasticity Introduction Retailers can increase profits either by decreasing costs or increasing sales. The "cost reduction" opportunities are of an operational nature --- they depend on efficient stock management, personnel management, and exploiting technology. The "sales increase" opportunities are market-driven, and can be divided in two categories: (a) out-of-store tactics and (b) in-store-tactics. With out-of-store tactics the retailer works to bring more consumers into the store, either by attracting new consumers or inducing current patrons to shop at their store versus the competition more often. With in-store tactics the retailer attempts to extract more surplus from consumers once they are in the store. In this article, we focus on a subset of these in-store tactics. Specifically, we study how retailers (and manufacturers) can boost sales by better managing existing shelf-space through store-level shelf management, what is sometimes referred to as micro-merchandising. Instead of relying on a single chain-wide policy, micro-merchandising involves the implementation of store-specific merchandising and promotional tactics (Hoch, Kim, Montgomery, and Rossi 1995). Rapid developments in the efficient collection and analysis of sales data through UPC
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This note was uploaded on 03/30/2010 for the course FINACE 101 taught by Professor Finance during the Spring '10 term at Regent.

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space_mgt_rev_6.1 - Shelf Management and Space Elasticity...

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