The Impact of Limited Retail Shelf Space on Category Management

38 Pages Posted: 1 Jul 2008

See all articles by Mumin Kurtulus

Mumin Kurtulus

Vanderbilt University - Operations Management

L. Beril Toktay

Georgia Institute of Technology - Sustainability

Date Written: June 29, 2008

Abstract

Shelf space scarcity is a predominant aspect of the consumer goods industry. This paper analyzes its implications for category management. We consider two category management mechanisms: retailer category management, where the retailer determines product prices, and category captainship, where a manufacturer in the category is responsible for retail pricing. We develop a game-theoretic model of two competing manufacturers selling through the same retailer. The retailer behaves strategically and determines the category shelf space based on the profit potential of the category and on the opportunity cost of retail shelf space. Our analysis reveals that irrespective of the form of category management, the retailer can use category shelf space strategically to control the intensity of competition between manufacturers to his benefit. We find that shelf space scarcity significantly affects conditions under which category captainship would naturally emerge by benefiting the retailer and the category captain. Category captainship has been criticized for disadvantaging non-captain manufacturers. While we provide support for this claim, we also find that category captainship may benefit non-captain manufacturers when implemented by a powerful retailer in categories with sufficiently differentiated products.

Keywords: supply chain, retailing, category management, category captainship, limited shelf space

Suggested Citation

Kurtulus, Mumin and Toktay, L. Beril, The Impact of Limited Retail Shelf Space on Category Management (June 29, 2008). Available at SSRN: https://ssrn.com/abstract=1153130 or http://dx.doi.org/10.2139/ssrn.1153130

Mumin Kurtulus (Contact Author)

Vanderbilt University - Operations Management ( email )

Nashville, TN 37203
United States

L. Beril Toktay

Georgia Institute of Technology - Sustainability ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

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