Category management under non-symmetric demands

Abstract

Category management is known as a strategic approach that can enhance the collaboration between retailers and manufacturers in a supply chain. In this study, we examine two category management scenarios, Retailer Category Management (RCM) and Category Captainship (CC), for a two-stage supply chain in which two manufacturers sell their substitutable products through a common retailer. Based on non-symmetric demand functions, we develop two mathematical models in which the retailer adopts RCM and CC. By comparing these two models’ equilibrium outcomes, the following insights are found. First, the optimal policy for shelf space allocation and pricing decisions are obtained. Second, we indicate  three situations under which competitive exclusion does not exist. This supports decisions on whether to switch from RCM to CC. Third, our analysis shows the evidence to support the retailer on choosing the category captain regarding either the retailer's join profit gain or the competitive exclusion. Last, we highlight the various conditions under which the retailer has either low or high flexibility in choosing products for the category, when the competitive exclusion is concerned. Our model is the first to illustrate the interaction impact of non-symmetric market potential, non-symmetric own-price elasticity and cross-price sensitivity on category management.

KEYWORDS:

• Category management
• category captainship
• two-stage supply chain
• non-symmetric demands
• limited shelf space

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This research was supported by the Ministry of Science and Technology, Taiwan under Grant 104-2410-H-008-031-MY2.

Notes on contributors

Gwo-Ji Sheen

Gwo-Ji Sheen is a Professor of Institute of Industrial Management and Department of Business Administration at National Central University, Taiwan. Dr Sheen received his PhD from the University of Wisconsin-Madison. His research interests are in the areas of planning and scheduling, design and analysis of channel functions as well as Enterprise Resource Planning/Business Intelligence (ERP/BI) implementation. Dr Sheen has assisted companies in grocery, retailing, machinery, and media in fine-tuning their business processes and adopting new IT technology.

Anh H. G. Nguyen

Anh H. G. Nguyen is a PhD candidate of Institute of Industrial Management at National Central University, Taiwan. Her research interests are in the areas of planning and scheduling.

Yingchieh Yeh

Yingchieh Yeh is an Associate professor and the Chair of Institute of Industrial Management at National Central University, Taiwan. Dr. Yeh received his PhD from the School of Industrial Engineering at Purdue University. His primary research interests include simulation output analysis, applied probability and statistics, and applied operations research.