Assortment, Shelf Space and Price Planning

Assortment, shelf space and price planning are both extremely important and challenging for retailers. Retailers need to satisfy consumer demand with shelf supply by balancing variety (number of products) and service levels (number of items of a product), and offer competitive prices with respect to limited and valuable operational resources such as shelf space and merchandizers. For example, offering broader assortments may limit appropriate service levels and vice versa. Lower item prices diminish the profit contribution per item sold, but increase demand and impact overall profitability, depending on price elasticity. Additionally, higher demand requires more frequent restocking or a higher number of facings. Retailers therefore benefit from comprehensive shelf space management. Several empirical studies show that well-executed shelf space management results in profit growth because of an efficient response to consumer behavior and effective category management (McIntyre and Miller 1999);(Hennessy 2001; Basuroy et al. 2001; Dhar et al. 2001; Shugan and Desiraju 2001; ECR Europe 2003a; Levy et al. 2004; Grocery Manufacturers Association et al. 2005; Desrochers and Nelson 2006; Campillo-Lundbeck 2009; Gutgeld et al. 2009; Fisher and Raman 2010). As a result, category management needs to carefully plan assortment size, shelf space assignment of products and price of each product.