The Impact of Category Captainship on the Breadth and Depth of Retail Assortment

Abstract

This paper explores the consequences of a recent trend in consumer goods retailing where a retailer partners with a leading manufacturer and relies on this manufacturer for strategic recommendations regarding category management. We consider a model where multiple differentiated products compete to be included in the assortment at a retailer. We compare a scenario where the retailer selects its own assortment to maximize its profit to a scenario where the retailer delegates the assortment selection decision to one of the manufacturers (i.e., the category captain) who promises to deliver a target profit and drives additional traffic into the category. The category captain's ability to drive additional traffic is unknown to the retailer. While one would expect the category captain to exclude some of its competitors if given the power to modify the assortment, we find that this is not always the case. In particular, we show that the breadth (total number of products) and/or depth (overall appeal) of the assortment at the retailer can increase or decrease under category captainship in comparison to category management by the retailer. Furthermore, while the benefits that accrue to the category captain usually come at the expense of the non-captain manufacturers, we also identify conditions under which category captainship can be a win-win initiative for all the involved parties including the non-captain manufacturers.