New product introductions, slotting allowances, and retailer discretion

Retailers are increasingly demanding slotting allowances for new product introductions. We study two methods of determining the magnitude of such allowances: In the first, the retailer sets the allowance on a "brand-by-brand" basis. In the second, all introductions are asked the same "uniform" allowance. Using a mathematical model, we address the question "which is the preferred method?" This analysis reveals an important tradeoff. While the brand-by-brand method lets the retailer benefit from any successful introduction, the uniform method lets the retailer demand higher allowances. We identify the conditions favoring the use of these methods. (C) 2001 by New York University. All rights reserved.