The Profit Benefits of Category Management

Abstract

The practice of category management (i.e., empolying a single decision maker who is responsible for a firm's product line) has been advocated as a superior alternative to brand management (i.e., independent decision makers who act as independent entrepreneurs within the same firm). The author provides an extremely general product line pricing model that calibrates the potential profit benefits of a coordinated category-level pricing strategy as compared with an uncoordinated brand-level pricing strategy. The model can be used to obtain optimal prices and profits for any general pricing “coalition” between brands—brand management or category management.