Direct Product Profitability and Retail Shelf‐space Allocation Models

Given an assortment of k products, a retailer must make an important decision on the percentage of space allocated to each of them. Optimization models for this problem have previously shown that an item's space should not simply be given in proportion to its sales or its gross margin (GM). Calculations of Direct Product Profitability (DPP) have improved upon the GM concept, but the present paper is the first (of which we are aware) to integrate the DPP approach into a shelf‐space optimization model.