Should the fox guard the henhouse? Category captainship arrangement as a strategic information transmission mechanism

Abstract

Retailers may collaborate with key suppliers to manage some specified categories. This collaboration is often formalized as a “captainship arrangement” between the retailer and her leading supplier in the category. The designated “category captain” assists the retailer with category management decisions. We show that captainship arrangements have the potential to generate a valuable information effect for the retailer: nonprice decisions by the category captain can reveal information that allows the retailer to improve profit through better retail pricing decisions. We also show that captainship arrangements have the greatest potential to make the retailer better off in categories where the retailer is highly uncertain about the impact of category resources on brands' demand. Moreover, the more substitutable the brands in the category, the more valuable a captainship arrangement is to the retailer. The information effect of category captainship is robust to a variety of arrangements. It is present under delegation arrangements (where the retailer delegates the task of category resources deployment to the captain), as well as under advisory arrangements (where the retailer retains control over category decisions, relying on the captain for advice). Interestingly, we find that delegation has a “better” potential to transmit information than advisory. Furthermore, in case of an advisory arrangement, the retailer is better off keeping the captain's advice confidential rather than sharing it with the other suppliers.