Impacts of Category Management and Brand Management From a Retailer’s Perspective

Abstract

The marketing objective of a manufacturer is to maximize the profits of its brands. While a brand management strategy is geared towards maximizing the profit of a single brand, the category management policy tries to maximize the overall profitability of the entire product line.

Unlike a manufacturer who wants to maximize the profit of his own brand, a retailer is not interested in the profitability of any particular brand but concentrates on the overall category profit. In other words, a retailer acts a category manager with the objective of maximizing category profit. We argue that the category profit may be maximized when the retailer allows a few large manufacturers to practice brand management and the retailer manages the rest of the brands. We develop a game theoretic model for the three scenarios and show that the optimal category profit is indeed higher for the mixed strategy than the other two strategies.