Category Captainship: Outsourcing Retail Category Management

Retailers in the fast-moving consumer goods industry often rely on a leading manufacturer for category management, a form of supplier-retailer collaboration referred to as category captainship. There are reported success stories about category captainship, but also a growing debate about its potential for anti-competitive practices by manufacturers. Motivated by conflicting viewpoints, the goal of our research is to deepen our understanding of the consequences of such collaboration initiatives between the retailer and only one manufacturer. To this end, we develop a game theoretic model that captures the basic tradeoffs in using category captains for category management. We consider two scenarios which are in line with traditional retail category management and category captainship. In the first scenario, the retailer is responsible for managing the category and decides retail prices, shelfspace allocations and retail assortment. The manufacturers compete for the limited shelfspace at the retailer. In the second scenario, we assume that the retailer delegates all retail category management decisions to one of its manufacturers and implements its recommendations in return for a target category profit. We compare these two scenarios to investigate the impact of the transition to category captainship on the retailer, the manufacturers and the consumers. We conclude with design recommendations on the scope and structure of category captainship.