A controversial trend in consumer goods retailing examined | Researcher: Alper Nakkas
Nova SBE’s Professor Alper Nakkas and co-authors examine the consequences of a recent controversial trend in consumer goods retailing, wherein a retailer cedes partial control of management decisions to one of the category’s leading manufacturers (named as category captain). While category captain may gain advantage in the category at the expense of its competitors, the researchers find that this is not always the case. Category captainship can be a win-win initiative for all involved parties.
A Controversial Retailing Practice – Category Captainship
Consumer goods retailing is a tough business to operate due to the competitiveness of the industry and complexity of consumer needs. The proliferation of products and the low margins because of intense competition dictates high operational efficiency. As a response, many retailers have started to rely on their leading manufacturers for strategic recommendations regarding key category decisions. These leading manufacturers have often been referred to as category captains, and the practice itself has been referred to as category captainship.
While there have been many successful category captainship implementations (for example, Walmart partners with General Mills in soy milk category), a persistent concern has been potential competitive exclusion, that is, the potential for the captain to engage in opportunistic behavior that favors its own products at the expense of its competitors. The difficulty is that even though competitive exclusion is a possible negative consequence of category captainship, it may not be easy to detect it as it can be manifested in many different forms - this is the main focus of this research.
Research Findings – The Impact of Category Captainship
When executed properly, category captainship can effectively leverage the expertise of the captain to drive incremental traffic into the category, thus benefiting the retailer, consumers and participating manufacturers. However, by ceding decision authority to a single manufacturer, the retailer creates an opportunity for the captain to improve its own performance at the expense of its competition.
The results of the analytical model developed by the authors of this research imply two conditions that should be taken into consideration when policing the activities of the category captain.
• First, strong opportunities for competitive exclusion exist if the retailer underestimates the capability of the category captain, as the captain can exclude competitive products to its benefit while still achieving performance targets. Resolution of this potential problem requires the retailer to accurately assess the capability of the captain and set performance targets accordingly.
• Second, retailers should consider the degree of product heterogeneity in the category when determining the amount of effort to invest in monitoring the captain's activity. Categories with a relatively homogeneous product set (e.g., canned corn) are easier for the retailer to police as attempts at competitive exclusion on the part of the captain can only result from overt exclusion of a competitor's product.
When a retailer does a good job on these two dimensions, the captainship can be beneficial for not only the retailer and the captain but also for the non-captain manufacturers.
This article is based on the paper “The Impact of Category Captainship on the Breadth and Appeal of a Retailer's Assortment”, by Alper Nakkas (Nova SBE), Mumin Kurtulus (Vanderbilt University), Sezer Ulku (Georgetown University) and Jeff Dotson (Brigham Young University), published in the Journal of Retailing in 2014.