Influencing Competition Through Shelf Design

TL;DR

This paper models how shelf design influences product demand through primary placement and secondary proximity effects, revealing strategies to optimize profits by leveraging competitive interactions.

Contribution

It introduces a modified GEV model capturing proximity effects, providing new insights into shelf design's impact on demand and profitability.

Findings

Shelf design can increase profits by up to 7%.

Proximity effects influence demand more than previously understood.

Optimized shelf placement can yield 3% higher gross profits.

Abstract

Shelf design decisions strongly influence product demand. In particular, placing products in desirable locations increases demand. This primary effect on shelf position is clear, but there is a secondary effect based on the relative positioning of nearby products. Intuitively, products located next to each other are more likely to be compared having positive and negative effects. On the one hand, locations closer to relatively strong products will be undesirable, as these strong products will draw demand from others -- an effect that is stronger for those in close proximity. On the other hand, because strong products tend to attract more traffic, locations closer to them elicit high consumer attention by increased visibility. Modifying the GEV class of models to allow demand to be moderated by competitors' proximity, these two effects emerge naturally. We found that although the competition effect is usually stronger, it is not always the dominating effect. Shelf displays can achieve higher profits by exploiting the relative influence on competition from shelf design to shift demand to higher profitability products. In the paper towel category, we found profitability differences of up to 7\% and displays with 3\% higher gross profits over the best shelf design present in our data.