Interaction Between Shelf Layout and Marketing Effectiveness and Its Impact on Optimizing Shelf Arrangements

Erjen van Nierop (), Dennis Fok and Philip Hans Franses
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Erjen van Nierop: Faculty of Economics and Business, Department of Marketing, University of Groningen, 9700 AV Groningen, The Netherlands

Marketing Science, 2008, vol. 27, issue 6, 1065-1082

Abstract: In this paper, we propose and operationalize a new method for optimizing shelf arrangements. We show that there are important dependencies between the layout of the shelf and stock-keeping unit (SKU) sales and marketing effectiveness. The importance of these dependencies is further shown by the substantive profit gains we obtain with our proposed shelf optimization approach. The basis of our model is a standard sales equation that explains sales using item-specific marketing effect parameters and intercepts. In a Hierarchical Bayes (HB) fashion, we augment this model with a second layer that relates the effect parameters to shelf and SKU descriptors. We also take into account potential endogeneity of facings. After estimating the parameters of the two-level model using Bayesian methodology, we carefully investigate the dependencies of SKU sales and SKU marketing effectiveness on the shelf layout. Next, we search for the shelf arrangement that maximizes the expected total profit using simulated annealing (SA). We appear to be able to increase profits for all the stores analyzed, and our approach appears to outperform well-known rules of thumb.

Keywords: shelf management; sales models; Hierarchical Bayes; Markov Chain Monte Carlo; simulated annealing (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (27)

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http://dx.doi.org/10.1287/mksc.1080.0365 (application/pdf)

Related works:
Working Paper: Interaction Between Shelf Layout and Marketing Effectiveness and Its Impact On Optimizing Shelf Arrangements (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:27:y:2008:i:6:p:1065-1082

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