A Slotting Fee Is A Form Of
What is Slotting Allowance?
Slotting allowance or slotting fee is the fee charged to producers/manufacturers by the supermarket retailers for various reasons like keeping their products, stocking the product in its warehouse, or inventory and IT support. The slotting allowance may also be charged on the marketing expenditure incurred by the company for the product.
Slotting fee definition is - a fee charged by a vendor in exchange for carrying a manufacturer's product —called also slotting allowance.
Slotting allowance or slotting fee is the fee charged to producers/manufacturers by the supermarket retailers for various reasons like keeping their products, stocking the product in its warehouse, or inventory and IT support. The slotting allowance may also be charged on the marketing expenditure incurred by the company for the product. Slotting fees are relatively high especially for new and smaller manufacturers—making it difficult to stay in business and keep up with other retail giants. According to the Journal of Business Ethics, some retailers require a flat fee of $5,000 per product introduction, while some have fees designated towards where the product is located.
Every year the producers suggest various new products to the retailers, generally to the concerned category manger. The category manager then decides on whether to stock the product or not depending on profitability and then charges the producer for stocking it. It is a very common practice in the United States where the stocking fee per product per manufacturer per year may be as high as $50000. It is a very important source of revenue for the retailers.
A ban of slotting fees would disable the rst supplier to compensate the retailer for a higher wholesale price. Thus, a ban of slotting fees would reduce the extent of upward distortion in the rst negotiation leading to a higher social welfare. We further aim at explaining why some suppliers pay slotting fees, while their competitors do not. Marketing Sci.11(4, Fall) 327–347.) have assumed that slotting fees arise as manufacturers respond to retailer demands. Here, the manufacturer willingly offers an allowance. As a consequence, slotting allowances do not represent a windfall for the retailer; he merely breaks even on a product for which a slotting allowance is paid.
The slotting fee charged depends on the kind of retailer, his merchandizing range, producer, product category, rate of consumption of product, margin offered to retailer etc. Many people believe it is a wrong practice as it seriously inhibits the entry of new and smaller manufacturers in the market. According to retailers who are in support of the charged fee, it is charged to efficiently allocate scarce retail space, mitigate product failure risk, it makes manufacturers to signal their expectations form the product and many more.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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