One for All or All for One: Does the Category Captain Play Favorites
50 Pages Posted: 16 Nov 2016 Last revised: 16 Dec 2016
Date Written: September 15, 2016
Category management is challenging for retailers that sell thousands of products across hundreds of categories and often lack the resources and capabilities to manage all of them intensively. Picking one supplier to be the category captain (CC) to manage the category – including rival’s brands – through pricing and merchandising is a recent retail management initiative that aims at improving a retailer’s overall performance in a product category. Despite tremendous retailer and manufacturer interest in CC and its adoption in the industry, much uncertainty exists about the consequences of CC. This paper empirically examines the role of CC by utilizing a unique data set on ready-to-eat cereals category, characterized by high concentration and market power, before and after the transition into category captain management. We find that after the transition, CC acted to improve its own market shares and those of private labels. A private label is designating a product under the name of the retailer rather than the name of the manufacturer and often offers higher profit margins for the retailer. In addition, CC improved its market shares by focusing on its core competency brands at the expense of some of its smaller brands while CC improved private labels’ market shares through an uniform increase across all private label brands. Using estimates from a structural model, we find consumer welfare is increased by 8.8% after the transition into category captain management.
Keywords: Category Captain, Competition Exclusion, Discrete-Choice Models, Random CoeCients, Ready-To-Eat Cereal Industry
JEL Classification: L1, L2, L4, L66
Suggested Citation: Suggested Citation