The Role of Slotting Fees in the Coordination of Assortment Decisions
2009, Production and Operations Management
Goker Aydin, W. H. Hausman
Large numbers of new products introduced annually by manufacturers may strain the relationship between
retailers and manufacturers regarding assortments carried by retailers. For example, many retailers in the
grocery industry will agree to broaden their assortments only if the manufacturer agrees to pay slotting fees for
the new products. We investigate the role played by slotting fees in coordinating the assortment decisions in a
supply chain. To do so, we study a single-retailer, single-manufacturer supply chain, where the retailer decides
what assortment to offer to end customers. Double marginalization results in a discrepancy between the retailer’s
optimal assortment and the assortment that maximizes total supply chain profits.We consider a payment
scheme that is analogous to slotting fees used in the grocery industry: the manufacturer pays the retailer a
per-product fee for every product offered by the retailer in excess of a certain target level. We show that, if the
wholesale price is below some threshold level, this payment scheme induces the retailer to offer the supply chain-
optimal assortment and makes both parties better off.
Aydin, G. and W. H. Hausman (2009), "The Role of Slotting Fees in the Coordination of Assortment Decisions," Production and Operations Management, Vol. 18, No. 6, November/December, pp. 635-652.