Competitive Consequences of Using a Category Captain
University of Texas at Dallas - Department of Management
Jagmohan S. Raju
University of Pennsylvania - Marketing Department
Sanjay K. Dhar
University of Chicago - Marketing Management
Fudan University - School of Management
October 1, 2010
Management Science, Vol. 56, No. 10, pp. 1739-1765, 2010
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.
Keywords: category management, delegation, distribution channels, retailing, suppy chain collaboration
JEL Classification: L13, L42, L81, C72Accepted Paper Series
Date posted: September 19, 2011 ; Last revised: April 5, 2012
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