The Value of Category Captainship in the Presence of Manufacturer Competition

Abstract

This research investigates the value of category captainship (a management practice in which a retailer relies on a manufacturer for recommendations regarding strategic category management decisions) in retail supply chains. We consider a setting where the scope of category management is limited to assortment decisions and demand enhancing activities. We assume that the retailer selects a category captain among multiple competing manufacturers with privately known capabilities for driving category traffic. First, we consider a benchmark scenario where the retailer is responsible for category management. Then, we consider the category captainship scenario where the retailer selects one of the manufacturers as a captain to manage the category. We find that captainship is more likely to emerge in categories where the cost of managing variety, the retail margins, and the competition for captainship are moderate and the captain is more capable of driving traffic compared to the retailer. In such categories the collaboration between the retailer and the captain ensures sufficient surplus for both parties. Finally, we show that captainship can also benefit the non-captain manufacturers.