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



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 manufacturers each producing a product with different appeal to consumers sell their products through a single 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 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 (number of products) and/or 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 identify conditions under which category captainship can be a win-win initiative for all the involved parties including the non-captain manufacturers.
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Dr. F. Sting