I think you want all the I, II's, III's, and IV's to be stacked. But there are different grades within each tier... for instance
Bloodthirst Materia
HP + 10 14 17 20 25 29 32 35 40 44 47 50 55 60 65 70
Would have 16 possible stacks.
This might save some space, but most of the time I have a wide variety of materia and maybe 2-3 of the exact same materia. Out of the 100+ materia on my retainer I have about 10 exact duplicates (this is just me).
Yeah 10 extra slots is better than none... I don't think it's that huge of a problem.
I would much much greater superior enjoy like love further appreciate a MATERIA COMBINER to put 3x Tier I's to create a tier II, 3x Tier II's to create a Tier III and 3x Tier III's to make a Tier IV. No way to combine Tier IV's though.. at least until they come out with Tier V!
I, I, I = II
II, II, II = III
III, III, III = IV
27 Tier I materia = 1 Tier IV materia

That seems pretty fair.