Saturday, May 03, 2003

The Zero-sum game for shelf space Oligopolies, like any businesses that produce products, search for shelf space, whether it be physical (at the local supermarket or bookstore) or virtual (in a newspaper or on television). On the other hand, some businesses, often oligopsonies, control shelf space. There is a constant struggle going on, whereby producers try to get on the “shelves” while retailers or media try to control their access. But there is only so much shelf space, whether in a supermarket or a radio station’s daily schedule. In mature industries, there’s no empty space available, so you gain space by knocking something else off. In game theory, that’s called a zero-sum game. As a simple example, imagine that after extraordinary development and sales effort, a company gets its brand of spaghetti sauce on the shelf of a supermarket. The immediate effect can be: One or more rival brands of spaghetti sauce get fewer inches of shelf space. One or more rival brands of spaghetti sauce get dropped altogether, The shelf space dedicated to the spaghetti sauce category expands, so that some other product category (say, tomato paste or pet food) suffers. Of course, it is possible that the supermarket will expand its shelf space, but then the supermarket is faced with the question of whether added shelves would lead to correspondingly higher sales, enough to compensate for increased overhead. If there were no limits to growth in shelf space, supermarkets would be constantly adding new wings. Expansion in a mature market might have one of two results: lowering the returns in the expanding market or causing nearby competitors to lose business, and eventually close down, with a net break even of shelf space in a market. The upshot is that, if you are producer, it’s not enough to have a good product. It’s also necessary to show why stocking your product is such an advantage that others need to lose space while you gain it. The persuasive reasons for being given that shelf-space are: Your product will sell better than others, giving the store more turnover, thanks to superior value, better advertising and promotions, brand recognition, and/or expanding consumer demand in the product category. Your product will give the store higher margins per inch of shelf-space. Your product satisfies a new need that customers would be disappointed not to find at your store (and maybe they’d go to a rival market to find it). You’ll pay the retailer more to carry your product, give bigger margins, or provide services that make his business more profitable. Based on one, preferably several, of these arguments, you must prove that your product will make more money for the supermarket than the competition, In fact, the competition is more than just your immediate neighbors on the shelf. For example, most US markets have severely reduced the number of brands and varieties of frozen yogurt flavors in recent years. The freed-up freezer shelf space was grabbed up by even more varieties of premium (high fat) gourmet ice cream. One category’s loss is another’s gain. But these principles apply to far more than retailing. It’s the problem of a record company getting its songs on the radio, the filmmaker getting a film in theaters, even a book agent getting positive book reviews in the press. All stores and all media have limited “shelves,” and increasingly these are being controlled by fewer companies. And in many of these situations, there is a limit to the available space. Getting into these spaces involves an increasingly expensive and elaborate campaign, where the seller has to be able to speak as an equal with the retailers/media leaders. It requires money, distribution systems in place, and the ability to make a deal. Small, isolated companies find it harder and harder to sit at the table with the big guys; that’s why, after a while, they’re willing to sell out to oligopolies who can effectively play the zero-sum game for limited shelf space.   9:08:49 PM

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