Shelf Space Allocation for Store Brands

This paper studies the shelf space allocation decision for a store brand. We argue that since the store brand can play a unique role in the overall strategy of the retailer, traditional arguments for shelf space allocation decisions may not be sufficient. In particular, we show that since store brands can be used to create a unique position for the retailer and develop store loyalty, store brands must get more shelf space as compared to that based on models like SH.A.R.P. (Bultez and Naert 1989). Our analysis also explains the differences between U.S. and European retailers with respect to their treatment of store brands. While several very successful retailers in the U.K. (e.g., Sainsbury) offer relatively more shelf space to their store brands, retailers in the U.S. provide relatively little shelf space to their store brands. Our explanation of the above phenomenon lies in the differences in the objectives of a retailer for its store brand. Moreover, we show that the quality of the store brand is critical to achieving these objectives and we thereby provide a better understanding of the difficulties in changing the role of the store brand in a retailer’s positioning strategy.