Retail Display Allowance, also known as slotting allowance or display allowance, refers to an agreement between retailers and manufacturers where the amount due from a retailer to a manufacturer is reduced in exchange for a more prominent display of the manufacturer’s product in the store or on the shelf. This marketing strategy aims to increase product visibility and, consequently, sales.
Types of Retail Display Allowance
Direct Product Allowance
A reduction in the invoice amount directly tied to the placement of the product in a prime shelf location.
Promotional Allowance
A discount offered to retailers to support in-store promotions, such as special displays or end-cap promotions.
Advertising Allowance
Aggreement for shared cost in local advertising where the retailer promotes the manufacturer’s product within their store.
Special Considerations
- Fair Trade Practices: The arrangement must comply with fair trade practices and anti-competitive laws.
- Negotiation: Terms are typically negotiated based on the expected increase in product sales resulting from the prominent display.
- Documentation: Clear documentation is crucial to outline the terms of the allowance, including the duration and specific display requirements.
Examples
- Seasonal Promotions: A soft drink manufacturer might reduce the invoice amount for retailers who agree to feature a special display during the summer season.
- New Product Launch: A cereal company provides an allowance to a retailer to place their new cereal brand at eye level for a fixed period.
Historical Context
The concept of retail display allowances became prominent in the mid-20th century as supermarkets and large chain stores emerged. These stores provided manufacturers with new opportunities to influence consumer choices through strategic product placement.
Applicability
Retail Display Allowances are common in industries with high competition and where product visibility can significantly impact sales, such as food and beverages, personal care products, and over-the-counter medications.
Comparisons
- Trade Promotions vs. Retail Display Allowance: While both aim to boost sales, trade promotions may include sales incentives, discounts, and advertising support, whereas retail display allowances are specifically for in-store product placement.
- Commercial Bribery vs. Retail Display Allowance: Commercial bribery involves illegal payments for business advantages and is considered unethical, whereas properly documented and agreed-upon display allowances are legitimate business practices.
Related Terms
- Slotting Fees: Payments made by manufacturers to retailers to secure shelf space.
- Point-of-Purchase (POP) Displays: Marketing materials or advertising placed near the product being promoted.
- End Caps: Display fixtures located at the end of an aisle.
FAQs
Are retail display allowances legal?
How are retail display allowances recorded in accounting?
Can small businesses afford to offer retail display allowances?
References
- Kotler, P. (2009). Marketing Management. Prentice Hall.
- Kumar, N., & Steenkamp, J.-B. E. M. (2007). Private Label Strategy. Harvard Business School Press.
- Varley, R. (2005). Retail Product Management: Buying and Merchandising. Routledge.
Summary
Retail Display Allowance is a strategic financial and marketing practice employed by manufacturers to secure prime shelf space within retail stores. By reducing the amount owed by retailers in exchange for prominent product placement, manufacturers aim to increase product visibility and sales. This practice, rooted in the competitive nature of retail markets, requires careful negotiation and documentation to ensure compliance with legal standards and effective promotion of the product.
