MEASURES OF PRODUCT ATTRACTIVENESS AND THE THEORY OF CONSTRAINTS

Direct product profitability (DPP) is a performance measure that was designed to show each SKU′s contribution to profit. Used by food retailers to assist with shelf‐space allocation and pricing decisions, DPP has been adopted only very slowly since it was first implemented in 1979. Operators cite DPP′s labour‐intensity and complexity as barriers to its use. Shows that, besides being difficult to implement, DPP distorts a product′s contribution to profit. Drawing from the theory of constraints, a systems management philosophy, develops measures that accurately reflect a product′s contribution to profit and compares these to DPP using data from a major supermarket chain. The measures are simple and can be implemented easily on existing space management systems.