Why are slotting allowances used?
The principal reason is to cover the considerable costs to introduce a product, to remove the item that previously occupied the shelf space and to recover some of the investment in the likely event that the new product fails. Depending on how a new product is defined, the failure rate ranges up to 80 percent per year. Each year, food retailers spend an average of $956,800 per store on new products that fail, according to a study of 1995 introductions by the market research firm Linton, Matysiak & Wilkes. The major reason cited for failures is a lack of market research. In many cases, manufacturers are using retailers to test-market new products. Through slotting allowances, manufacturers are, in effect, having the retailer conduct a live market trial instead of paying for test market research.
