Management and Effects of In-Store Promotional Displays

Forthcoming in Manufacturing and Service Operations Management

41 Pages Posted: 8 Jun 2017 Last revised: 20 Aug 2018

See all articles by Oguz Cetin

Oguz Cetin

University of North Carolina (UNC) at Chapel Hill - Operations Area

Adam Mersereau

University of North Carolina Kenan-Flagler Business School

Ali K. Parlakturk

University of North Carolina (UNC) at Chapel Hill - Operations Area

Date Written: August 15, 2018

Abstract

Problem definition: We examine a brick-and-mortar retailer's choice of which product to include in a promotional display (e.g., an "endcap" display). The display provides a visibility advantage to both the featured product and its category, but it also has consequences for customer traffic and substitution. Academic / practical relevance: While there has been considerable academic interest in the assortment planning problem (which products to offer?) and in the shelf-space allocation problem (how much space to devote to each product?), little attention has been paid to the problem of where to place products in the store. Promotional display choice can serve as a powerful demand-shaping lever for retailers. A good understanding of this problem can also facilitate a retailer's negotiations with manufacturers. Methodology: We develop analytical insights using a problem formulation based on a nested multinomial logit (NMNL) model of customer choice. Results: When choosing a promotional product from a fixed category, the only possible optimal choices for promotional display lie along an "efficient set" drawn in terms of product popularities and margins. The optimal choice along the frontier depends on a quantity we call "aisle attractiveness" that depends on several category-level parameters. The value of the display to a category pivots on whether the display's role is primarily to expand demand for the category or to shape substitution within the category. Managerial implications: Our work provides guidance for how retailers can use and value promotional displays effectively. We highlight the importance of considering externalities of a display decision on store traffic and demand for other products.

Keywords: retail operations, assortment planning, promotional displays, choice modeling, nested multinomial logit model

Suggested Citation

Cetin, Oguz and Mersereau, Adam and Parlakturk, Ali K., Management and Effects of In-Store Promotional Displays (August 15, 2018). Forthcoming in Manufacturing and Service Operations Management, Available at SSRN: https://ssrn.com/abstract=2982535 or http://dx.doi.org/10.2139/ssrn.2982535

Oguz Cetin

University of North Carolina (UNC) at Chapel Hill - Operations Area ( email )

300 Kenan Center Drive
Chapel Hill, NC 27599
United States

Adam Mersereau (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Ali K. Parlakturk

University of North Carolina (UNC) at Chapel Hill - Operations Area ( email )

300 Kenan Center Drive
Chapel Hill, NC 27599
United States
(919) 962-3181 (Phone)

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