OPTIMIZING ON-SHELF AVAILABILITY FOR CUSTOMER SERVICE AND PROFIT

This paper reports on a research project investigating the trade-offs between on-shelf availability and profitability of a major, perishable food category in the context of substitutability and consumer loyalty. Primary research was carried out with one major UK grocery retailer and one of its category suppliers to determine what an optimal level of availability might be to ensure maximum customer service and profitability, and view the effects of this trade-off on consumer substitutability and loyalty. The findings led to the development of a general matrix to assess on-shelf availability and prioritize stock keeping units. Assuming that products with high profitability should have high availability the matrix provides three strategic propositions for underperforming products: increasing availability of highly profitable stock keeping units; increasing profitability for highly available products; and reducing availability for low profitability products if cost reductions can be achieved.