failure fee

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Failure fee refers to a trade promotion arrangement where a marketer agrees to pay a penalty fee if a product stocked by a retailer does not meet agreed-upon sales levels.
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Further discussion on failure fees:

As part of a trade allowance, some retailers demand what’s known as a slotting allowance (also called stocking allowance, introductory allowance, or street money) to handle new products. The argument that retailers give manufactures for charging such fees is that there is a cost associated with taking on new products each year. Some of the costs retailers claim, include:

  • Having to redesign new store shelves
  • Time spent entering the new product into their computer system
  • Finding warehouse space to store the new product
  • Taking time to brief or train employees on the new product
  • The risk and loss of potential revenue due to most new products failure to sell

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As a result of the perceived risks with taking on the new product, some retailers charge a failure fee. The charged fees relate to:

  • stocking the new product
  • maintaining inventories
  • pulling the product

 

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