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Slotting allowance
Introduction
For many years, slotting allowance has been a contentious issue on whether it should be illegal or not. Slotting allowance is the payment made by the manufacture or else salesperson to the retailer, for an assurance of getting a space in the retailer store or otherwise warehouses. In reality, the fee varies depending on the manufacturer, product as well as marker conditions. The practice is widespread in supermarkets industry. With this regard, Wang (2) argue that, some companies regards slotting allowance to be unethical in the sense that, it creates barriers for smaller business to compete with larger companies for lack of cash to pay slotting allowance. On the other hand, some companies outline slotting allowance to be beneficial in that, it efficiently allocate a retail shelf space. With this and many more, this paper seeks to examine three points in peer viewed academic journals articles in support and against the use of slotting allowances.
In support of slotting allowance
The major arguments in favor of slotting allowance are found in the article slotting allowance and fees 2000 whereby Bloom, Gundlach and Cannon argue that, slotting allowance is considered a vital tool that improve distribution efficiency. With this regard, Gloom, et al (1) argue that, slotting allowance enables companies to effectively distribute their goods to various supermarkets or any other business set up. To guarantee its distribution, the company pays slotting fees to retailers’ shops. In this context, it becomes an efficient aspect for various companies to distribute their goods in different channels who in turn, sell their products to various groups of people visiting those distribution channels. In this regard, the article reviews how a business may grow tremendously due to distributing its good to various channels.
Secondly, slotting allowance efficiently allocate a retail shelf space in the most profitable and valuable way. Allocating shelf space both benefit the manufacturer or else wholesaler with retailer. It is a well-documented fact; the manufacturer becomes advantageous in being competitive in the market in that; goods become known in the large market. It with do doubt, every client in the distribution places becomes aware of the company existence along with goods they offer. With this in mind, the article outlines slotting allowance to be the most efficient way for marketing goods (Gloom, et al 1).
Thirdly, in the article slotting allowance and retail market power 2006 Wang argue that, slotting allowance enables goods to be accessible to customers that mostly visit retail stores. Slotting allowance ensures that goods are available at all time thus enabling retailers to extend their sales to the widest number of customers. As a result, it greatly attracts clients who in this case, may be the users of the goods. Therefore, slotting allowance enables goods to be accessible to all thus; been an advantage to people located in the retail store who a time may be required to walk in miles in search for products. In this context, it saves time for clients in addition, saves money that would otherwise be used in accessing goods. In conjunction with this, Wang argue that, making goods accessible to clients benefit retail shops to convert their first time customers to frequent shoppers and frequent shoppers to potential shoppers. This is because; making goods available in retail shops creates customer satisfaction since; customers easily access what they need (Wang 1).
Against use of slotting allowance
In the article managing trade promotions within the context of market power 1999 Kasulis, Morgan, Griffith and Kenderdine, argue that, two main disadvantages of slotting allowance is that, slotting fees are unethical in that, they tend to create barriers for entry of smaller businesses who may not have cash flow to compete with other large companies. To some extend, it may lead to manufacturer’s goods penetrating to the market because of their capability for paying the slotting fee without considering the quality nature of goods they are offering. In this regard, Kasulis et al argue that, many smaller businesses are sidelined despite of the quality goods they may be offering. With this in mind, the article outline that slotting allowance limits smaller businesses to distribute their goods despite of its quality nature.
Secondly, to some extent, slotting allowance leads to abuse such in the case, of a manufacturer being required to pay a certain fee for a specific period that the products would be in shelves. As a result, many manufacturers end up enquiring losses paying the fee without guarantee of their products been sold. It becomes more frustrating when the product is new in the market in that, it may not be so much demanded compared to products that may have existed in the past. As a result, may products may end not bought, which as a result, may frustrate a firm that may have spent a lot of money paying for its item for the period it has been in retail stores.
Thirdly, to some extent, (Kenderdine, et al 1) argue that, slotting allowance done by retailer does not guarantee selling goods of the manufacturer. As a result, this can end up affecting the overall profits and sales of both the manufacturer and retailer. To some point, it leads to customer in satisfaction in sense that, a retailer may use slotting fees to stock the shop with goods without first considering the target market. Despite of benefiting from slotting fees; many customers that may not be the users of the goods may end up searching for other retail shops who in this case may be selling what they need. With this in mind, it is with no doubt; it would lead to market share thus; becoming unfavorable to the retailer shop. In addition, the manufacturer may incur losses in the sense that, goods may end up expiring in the retail shop whose otherwise would have been told in other potential market. In this regard, it may affect the overall profits and sales for both the manufacturer and the retailer.
Conclusion
In facts, it is obvious that, slotting allowance is both valuable and still detrimental. As discussed in the paper, it may be valuable in the sense that, it guarantees effective distribution, efficiently allocates a retail shelf space in the most profitable and valuable way and enabling goods to be accessible to customers more easily (Gloom et al, 1). On the contrary, it may create barriers for smaller businesses that may not have cash flow to compete with other large companies, businesses enquiring losses in paying slotting fees and a time no guarantee of the goods been sold. With this regard, this paper has examined three points in various articles in support and against the use of slotting allowances.
Work cited
Cannon, Joseph., Gundlach, Gregory., & Bloom, Paul. (2000). Slotting Allowances and Fees: Schools of Thought and the Views of Practicing Managers. The Journal of Marketing, 64 (2) 17, 2000, Print.
Kenderdine, James., David., Morgan, Fred., & Kasulis, Jack. Managing trade promotions in the context of market power. Journal of the Academy of marketing science, 27 (3) 320-332, 1999, Print.
Wang, Hao. Slotting allowances and retailer market power. Journal of Economic Studies, 33 (1) 68 – 77, 2006, Print.
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