Category Captainship: Outsourcing Retail Category Management

Abstract

Retailers in the consumer goods industry often rely on a leading manufacturer for category management, a form of manufacturer-retailer collaboration referred to as category captainship. There are reported success stories about category captainship, but also a growing debate about its potential for anti-competitive practices by category captains. Motivated by conflicting viewpoints, the goal of our research is to deepen our understanding of the consequences of such collaboration initiatives between the retailer and only one of its manufacturers. To this end, we develop a game theoretic model of two competing manufacturers selling through one retailer that captures the basic tradeoffs of using category captains for category management. We consider two scenarios that are in line with traditional retail category management and category captainship. In the first scenario, the retailer is responsible for managing the category and determines retail prices and assortment. In the second scenario, we assume that the retailer delegates part or all retail category management decisions to one of the manufacturers in return for a target category profit, and implements its recommendations. We compare these two scenarios to investigate the impact of the transition on all stakeholders in the supply chain. We conclude with design recommendations on the scope and structure of category captainship.