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Competitive Consequences of Using a Category Captain

  • Upender Subramanian

    ()

    (School of Management, University of Texas at Dallas, Richardson, Texas 75080)

  • Jagmohan S. Raju

    ()

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

  • Sanjay K. Dhar

    ()

    (Booth School of Business, University of Chicago, Chicago, Illinois 60637)

  • Yusong Wang

    ()

    (School of Management, Fudan University, Shanghai 200433, People's Republic of China)

Registered author(s):

    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.

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    File URL: http://dx.doi.org/10.1287/mnsc.1100.1211
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    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 56 (2010)
    Issue (Month): 10 (October)
    Pages: 1739-1765

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    Handle: RePEc:inm:ormnsc:v:56:y:2010:i:10:p:1739-1765
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    1. Shailendra Gajanan & Suman Basuroy & Srinath Beldona, 2007. "Category management, product assortment, and consumer welfare," Marketing Letters, Springer, vol. 18(3), pages 135-148, September.
    2. Daniel P. O'Brien & Greg Shaffer, 1997. "Nonlinear Supply Contracts, Exclusive Dealing, and Equilibrium Market Foreclosure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 755-785, December.
    3. J. Jeffrey Inman & Leigh McAlister, 1993. "A Retailer Promotion Policy Model Considering Promotion Signal Sensitivity," Marketing Science, INFORMS, vol. 12(4), pages 339-356.
    4. Bernheim, B.D., 1992. "Exclusive Dealing," Harvard Institute of Economic Research Working Papers 1622, Harvard - Institute of Economic Research.
    5. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    6. Gérard P. Cachon & A. Gürhan Kök, 2007. "Category Management and Coordination in Retail Assortment Planning in the Presence of Basket Shopping Consumers," Management Science, INFORMS, vol. 53(6), pages 934-951, June.
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