Shelf Management and Space Elasticity
Retailers can increase profits either by decreasing costs or increasing sales. The "costreduction" 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 thestore, either by attracting new consumers or inducing current patrons to shop at their store versusthe competition more often. With in-store tactics the retailer attempts to extract more surplusfrom consumers once they are in the store.In this article, we focus on a subset of these in-store tactics. Specifically, we study howretailers (and manufacturers) can boost sales by better managing existing shelf-space throughstore-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 Rossi1995). Rapid developments in the efficient collection and analysis of sales data through UPCscanners make it economically feasible to measure and monitor heterogeneity in local areademand. The hope is that supermarket economies of scale and scope can be combined with thecustomization that "Mom and Pop" stores offer in order to more effectively meet the wants andneeds of narrowly defined clienteles.