Competitive Consequences of Using a Category Captain

Abstract

Many retailers designate one national brand manufacturer in each product category as a "category captain" to help manage the entire category. A category captain may perform demand-enhancing services such as better shelf arrangements, shelf-space management, and design and management of in-store displays. In this paper, we examine when and why a retailer may engage one manufacturer exclusively as a category captain to provide such service and the implications. We find that demand substitutability of competing brands gives rise to a service efficiency effect--service that expands the category is more effective in increasing a manufacturer's sales and margin than service that shifts demand from a rival's brand. We show that the service efficiency effect may motivate a category captain to provide a service that benefits all brands in the category even though doing so is more costly. We further show that, in categories that are less price competitive, there is higher competition between manufacturers to become the category captain. Consequently, a retailer may obtain better service by using a category captain than by engaging both manufacturers simultaneously. Our findings may help explain why a retailer may rely on a category captain despite concerns regarding opportunism and why there is limited empirical evidence of harm to rival manufacturers.category management, delegation, distribution channels, retailing, suppy chain collaboration

Does private-label production by national-brand manufacturers create discounter goodwill?

“…To them, slotting allowances provided by NB manufacturers play a key role in a retailer's decision to carry a NB (Sudhir & Rao, 2006), while they are rarely used in a discounter setting (PlanetRetail, 2010). Future research could investigate to what extent our findings generalize to traditional retail formats on other dimensions of retailer goodwill, such as the extent of pass-through of trade promotions (Ailawadi & Harlam, 2009), the size of the slotting allowances (Sudhir & Rao, 2006), the NB manufacturer's influence on the retailer's promotional calendar (Dunne & Narasimhan, 1999), and/or the likelihood of being appointed "category captain" (Subramanian et al, 2010).…”

“…Relationship quality has been shown to have a larger impact on newproduct acceptance when products are moderately attractive than when they are very attractive (as when offered by the most successful manufacturer) (Kaufman, Jayachandran, & Rose, 2006). In a similar vein, retailers have been found to prefer the leading NB manufacturer as category captain, unless smaller players can (or are willing to) offer a special service (Subramanian, Raju, Dhar, & Wang, 2010). As such, PL production can be used by smaller NB manufacturers as a tool to overcome an inherent market-power disadvantage.…”

Power in distribution channels — Supplier assortment strategy for balancing power

“…Assortment management based on collaboration between suppliers and retailers has also been studied in literature about efficient consumer response (ECR), vendor managed inventories (VMI) and collaborative category management (e.g. Harris and McPartland, 1993;Dussart, 1998;Barratt and Oliveira, 2001;Kracklauer et al, 2001;Subramanian et al, 2010). One assumption is that suppliers have product knowledge and marketing responsibility, whereas retailers have an understanding of shopper behavior (Kracklauer et al, 2001).…”

Resource alignment in the category management of builders’ merchants

“…Several examples from retail practice show how suppliers have been successfully assigned as category captains, with the responsibility of managing an entire product category (cf. Subramanian et al, 2010;Kurtuluş et al, 2014). The benefit of supplier collaboration relies on the assumption that suppliers understand market trends within their own categories (Gruen and Shah, 2000;Kurtuluş et al, 2014) and that category expertise is shared between retailers and suppliers (Harris and McPartland, 1993).…”

“…In some cases, suppliers can be granted the role of a category captain; that is, they function as management advisors that aim to grow sales in the category (Dupre and Gruen, 2004;Bandyopadhyay, Rominger and Basaviah, 2009;Subramanian et al, 2010;Gooner, Morgan and Perreault, 2011). A subsequent and important question for retailers is the role that different actors should take in category management.…”