From: Dennis Brown [email protected]
Note: For more information and a copy of the study, contact Greg Gundlach at (219) 631-5171 or at [email protected]
A new study coauthored by a University of Notre Dame marketing professor provides the first comprehensive academic analysis of "slotting fees" ó the controversial practice of retailers and wholesalers requiring a payment from manufacturers before agreeing to allocate shelf or warehouse space to the manufacturers' product.
Introduced in the 1980s, slotting fees (or allowances) have become prevalent in the grocery industry and are becoming increasingly common in other business sectors including computer software, books, magazines, apparel, over-the-counter drugs, alcoholic beverages and tobacco products. These payments usually are negotiated in secrecy and required in advance, without public disclosure of their terms.
"This practice comes in all different shapes and forms," said Gregory T. Gundlach, associate professor of marketing at Notre Dame. "It's really happening in grocery stores, but it's expanding into many other areas, also."
Gundlach, Paul N. Bloom from the University of North Carolina and Joseph P. Cannon from Colorado State University examine the issue in a study titled "Slotting Allowances and Fees: Schools of Thought and the Views of Practicing Managers," to be published in the June issue of the Marketing Science Institute.
The authors begin with a thorough analysis of the two dominant schools of thought on the subject: the "efficiency" school, which includes large retailers and supports the use of slotting fees, arguing that they help improve efficiency in distribution; and the "market power" school, which includes manufacturers and small retailers and opposes them, claiming they damage competition.
The study also includes results of a survey of 802 managers of manufacturing and retailing organizations in the grocery industry on their views of slotting fees. The survey indicated that both manufacturing and retail managers tend to agree that the fees:
- help shift the risk of new product introductions
- are applied in a potentially discriminating fashion
- have resulted in higher retail prices.
The Federal Trade Commission, Department of Justice and many state attorneys general have considered the possibility that slotting fees could be illegal under antitrust laws, but no actions have been taken so far. The Bureau of Alcohol, Tobacco and Firearms has taken a strong stand against the fees, banning them in the marketing of alcoholic beverages.
Gundlach, Bloom and Cannon took no position in their study. "We were careful not to come down on one side or the other because of the exploratory nature of the research," Gundlach said. "We took pains to be objective."
A member of the Notre Dame faculty since 1987, Gundlach earned bachelor's, master's of business administration, law, and doctoral degrees from the University of Tennessee.
Bloom is a professor of marketing in the Kenan-Flagler Business School at North Carolina and Cannon is an assistant professor of marketing in the College of Business at CSU.
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