Category Management - A Pervasive New Vertical/Horizontal Format

CATEGORY MANAGEMENT – A PERVASIVE, NEW VERTICAL/HORIZONTAL FORMAT. Robert L. Steiner Independent Economist rls.cjs@erols.com ABSTRACT ANTITRUST, Spring 2001, Innovations in Retailing. Category Management started in the supermarket industry in the mid-1990s and rapidly spread across non-food categories in the U.S., Europe and elsewhere. It is a new kind of vertical arrangement that is not integration, franchising or a vertical restraint. A retail chain decides to manage its business on a product category basis. It then typically appoints a leading manufacturer in the category as a “Category Captain” who interface with the retail chain’s “Category Manager.” The Category Captain then collects information on the performance of all brands in the category and uses this to propose a plan to the retailer which specifies the SKUs the retailer should carry, how they should be positioned in the store and frequently also a promotional plan. Some, but not all, retailers simply accept the Captain’s proposed plan with few changes. The article identifies the efficiencies that Category Management can produce based on studies in the U.S. and Europe. It also explains the several competitive concerns. These include the exclusion of small producers, the creation of welfare-reducing vertical practices and the facilitation of price-fixing arrangements in the retailing sector. Adverse effects are more likely when a single Category Captain from a dominant manufacturer calls the shots than where the retail chain also calls in other manufacturers as advisors. On balance it appears that Category Management generates measurable efficiencies at both the manufacturer and retail level, but there is considerable uncertainty over the extent to which the cost savings will be passed forward to consumers.