Retail Assortment Planning Under Category Captainship

Abstract

Retail assortment planning can have a tremendous impact on a retailer's bottom-line performance. Over the past years, retailers have increasingly relied on their leading manufacturers for recommendations regarding the assortment to be offered to the consumers in a particular category, a practice often referred to as category captainship. Our research investigates the consequences of using category captains for assortment selection decisions. We develop a game-theoretic model where multiple manufacturers sell their products to consumers through a single retailer. We compare a model where the retailer selects the assortment in the category with a model where the retailer relies on a category captain for assortment decisions in return for a target category profit. We show that category captainship can, in some circumstances, benefit not only the retailer and the category captain, but also the noncaptain manufacturers. Our results have implications regarding the implementation of category captainship practices.retail supply chains, category management, category captainship, assortment planning, game theory

Category Captainship in the Presence of Retail Competition

“…This is in line with Cachon et al. () and Kurtuluş and Nakkas (), who also focus on assortment size optimization, and enables us to work with differentiable profit functions instead of performing discrete optimization.…”

Designing Multi‐Attribute Procurement Mechanisms for Assortment Planning

“…To reflect these two features, the type‐ i manufacturer is assumed to incur a total cost of when producing an assortment with n variants and total order quantity of Q units, where . This convex cost assumption is consistent with the previous literature in Marketing and Operations Management (e.g., Gaur & Honhon, ; Kurtulus & Nakkas, ). We also assume that .…”

“…Under the assumption that all variants have an identical newsvendor ratio, van Ryzin and Mahajan demonstrated that the optimal assortment should consist of a certain number of the most popular variants. Subsequent research extended the analysis to study how the retailer's assortment decisions could be affected by component commonality (Bernstein et al., ), category captainship (Kurtulus & Nakkas, ), or endogenous pricing (Maddah & Bish, ; Aydin & Porteus, ). Several other studies took a different route by relaxing the assumption of an identical newsvendor ratio.…”

“…An important prerequisite of the extant models is that the cost information is complete. However, many firms are reluctant to share sensitive information because of conflicting interests (e.g., Cachon & Zhang, ; Kurtulus & Nakkas, ; Kaya & Özer, ; Li & Sun, ). The informed firm often has an incentive to distort or hide information to gain strategic advantages such as information rent.…”

“…Because of information asymmetry (see, e.g., Lockstrom et al., and the references therein), the exact cost of producing an assortment is a closely guarded secret of many manufacturers. By following the previous literature in Marketing and Operations Management (e.g., Gaur & Honhon, ; Kurtulus & Nakkas, ), we assume that the cost of producing an assortment is linear with respect to the total quantity and the number of variants. We consider the use of screening and auction mechanisms to mitigate the effect of information asymmetry and contribute to the literature by building a connection between these two mechanisms. 3.…”