When does cross-space elasticity matter in shelf-space planning? A decision analytics approach

Continuous product proliferation and scare shelf space require a thorough understanding of customer demand effects when planning product allocation to retail shelves. In this context, cross-space demand effects describe the impact of a change in the space assigned to one item, on the demand of other items. This effect is complex and costly to measure and it is complicated to integrate into decision modeling and solution approaches. The tremendous amount of possible product interlinks results in both a large number of possible combinations to be tested, and non-linear models. Nevertheless, there is a growing body of decision models that integrate cross-space effects. However, current research has not investigated whether cross-space elasticities have any impact at all on optimal shelf decisions. It is therefore unclear whether future research on the empirical measurement and the development of optimization models is economically meaningful and justified.