Category management under non-symmetric demands

Abstract

Category management is known as a strategic approach that can enhance the collaboration between retailers and manufacturers in a supply chain. In this study, we examine two category management scenarios, Retailer Category Management (RCM) and Category Captainship (CC), for a two-stage supply chain in which two manufacturers sell their substitutable products through a common retailer. Based on non-symmetric demand functions, we develop two mathematical models in which the retailer adopts RCM and CC. By comparing these two models’ equilibrium outcomes, the following insights are found. First, the optimal policy for shelf space allocation and pricing decisions are obtained. Second, we indicate three situations under which competitive exclusion does not exist. This supports decisions on whether to switch from RCM to CC. Third, our analysis shows the evidence to support the retailer on choosing the category captain regarding either the retailer's join profit gain or the competitive exclusion. Last, we highlight the various conditions under which the retailer has either low or high flexibility in choosing products for the category, when the competitive exclusion is concerned. Our model is the first to illustrate the interaction impact of non-symmetric market potential, non-symmetric own-price elasticity and cross-price sensitivity on category management.