Category Captainship: When Should Retailers Outsource Category Management?

Abstract

Category captainship is a management practice where a retailer relies on one manufacturer in the category for recommendations regarding strategic category management decisions such as assortment planning. This research investigates the conditions under which category captainship practices are more likely to emerge and deliver value to retailers in a context where multiple manufacturers compete for captainship. The scope of category management is (1) deciding on assortment and (2) undertaking (costly) demand enhancing activities. Manufacturers may be more efficient in undertaking demand-enhancing activities, but their capabilities are unknown to the retailer. We find that the retailer's desire to implement captainship is stronger in categories where cost of traffic driving is high. However, other category characteristics also play a role: when the cost of traffic driving is high (low), the retailer's willingness to outsource category management is stronger (weaker) in categories where base traffic, margins, and attractiveness of the products in the category are high and/or operational cost of managing variety is low. Furthermore, we find that intense competition among manufacturers for the captainship role not only has a positive impact on the emergence of captainship but also increases the variety offered to consumers.

Keywords: Supply Chain Management, Retailing, Game Theory