THE PRICE OF LAUNCHING A NEW PRODUCT: EMPIRICAL EVIDENCE ON FACTORS AFFECTING THE RELATIVE MAGNITUDE OF SLOTTING ALLOWANCES

Slotting allowances are a relatively recent trend, particular to the retail food industry. These allowances are lump-sum up-front transfer payments from manufacturer to retailer when the manufacturer launches a new product. The practice has attracted some scrutiny because of uncertainty about its purposes and consequences. We draw from the extant literature to identify factors that potentially influence the relative magnitude of slotting allowances. Based on analysis of primary survey data from retailers and manufacturers, we observe that the charging and paying of slotting allowances is seemingly affected by the relative strength of the players. Among retailers, the relative magnitude of slotting fees increases with retailers' informational advantage over the manufacturer about the likely success of the new product. Similarly, the relative magnitude of slotting fees paid is lower for manufacturers who have a strong market share position. We discuss the theoretical, managerial and public policy implications of our findings.