Int. Rev.

of Retail, Distribution and Consumer Research

Vol. 17, No. 5, 523 – 541, December 2007

Value Creation and Category

Management through Retailer–Supplier
Relationships
JESPER AASTRUP*, DAVID B. GRANT** & MOGENS BJERRE{
*Copenhagen Business School, Frederiksberg, Denmark, **Logistics Institute, Hull University Business
School, Hull, UK, {Copenhagen Business School, Frederiksberg, Denmark

ABSTRACT This article discusses category management interactions in supplier–retailer

relationships based on conceptual insights about value in business markets. Much category man-
agement literature has studied supplier–retailer relationships, but despite value creation being
central to category management the conceptual approach is often the power-trust controversy.
Based on value concept, category management and supplier–retailer relationship literature this
study develops a model and hypotheses of retailer perceived benefits and sacrifices from category
management collaboration. The article proposes that closer supplier-retailer interactions through
the category management process hold the potential for increased value creation through applica-
tion of complementary information resources, an improved coordination of tactical efforts, and an
alignment of category aims and strategies explicitly linked to retailers’ value systems. Further,
the perceived necessity of trust in these relationships meshes with retailers’ perceived sacrifices
regarding negotiation power and full control of category marketing variables, thus establishing
a trade-off for retailers between benefits and sacrifices.

KEY WORDS: Retailer–supplier relationships, value creation, category management, benefits,

sacrifices

Introduction
This article applies conceptual insights of value creation in business markets to add
to the understanding of category management collaborative potentials and barriers
in relationships between retailers and suppliers of fast moving consumer goods
(FMCG), particularly grocery retailers. Based on value concept literature this paper
develops a model and hypotheses of a trade-off between retailer benefits and
sacrifices from moving to closer category management collaboration with suppliers.
The role of power and trust related issues are also inherent in the model, as well as
intervening effects of different types of brands and categories.
When it comes to value creation, the collaborative ideal put forward in the
category management literature emphasizes ‘the triple win’ (JIPECR, 1995; ECR
Europe, 1997), that is, value creation for suppliers, retailers as well as consumers.

Correspondence Address: Jesper Aastrup, Department of Marketing, Copenhagen Business School,

Frederiksberg 2000, Denmark. Tel.: (45) 3815 2931; Email: ja.marktg@cbs.dk

ISSN 0959-3969 Print/1466-4402 Online/07/050523-19 Ó 2007 Taylor & Francis

DOI: 10.1080/09593960701632019
524 J. Aastrup et al.

However, practitioners and consultants recognize that supplier–retailer relationships

possess inherent mechanisms inhibiting the development of value. This is also
indicated in research on category management barriers (Hogarth-Scott and Dapiran,
1997; Gruen and Shah, 2000; Kurnia and Johnston, 2003) which is explicitly based
on the power–trust controversy and related issues, and much less explicitly based on
the value concept.
Literature on category management, though founded on ideals of value creation,
has not previously analysed the value concept. Lindgreen and Wynstra (2005)
identified two streams of research—value of goods and services and value of buyer–
seller relationships. This article applies these insights to analyse value creating
aspects of category management relationships from a retailer’s point of view.
This study first discusses category management literature to highlight the lack of
studies addressing the collaborative phenomenon and value creation. Then, the value
concept is examined to reach a definition of value in business markets, present
different perspectives on value creation in business relationships, and outline the
main ideas to be pursued in the analysis of category management interactions. Next,
the value literature is applied in an analysis of the category management
phenomenon. Based on concepts and existing contributions regarding category
management a model and hypotheses are presented that address proposed
relationships between trust, power balance, category management related interac-
tions and a retailer’s trade-off between benefits and sacrifices. Lastly, conclusions
are drawn and managerial implications and proposals for future research are
presented.

Category Management as a Business Process and Collaborative Logic

Category management and more generally efficient consumer response (ECR)
appeared in the early 1990s in the FMCG-food retail industry. Category manage-
ment, as the demand side of ECR, can be seen as ‘a process that involves managing
product categories as business units and customizing them on a store-by-store basis
to satisfy customer needs’ (AC Nielsen, 1992: 9).
This concept implies that product categories are defined as basic business units; a
firm’s objectives are to customize marketing in relation to these categories for local
shopping needs to achieve business oriented benefits; and consumers are assumed to
make purchase choices from assortments within given categories (Dussart, 1998).
Thus, category management represents a strategic marketing planning process
taking as its starting point retailers’ interaction with consumers. This planning
process is structured through an eight-step model as shown in Figure 1 (JIPECR,
1995; ECR Europe, 1997) and which is considered the cornerstone of category
management (AC Nielsen, 2006).
Most definitions of category management involve explicit attention to the role and
importance of the supplier-retailer relationship in this marketing management
process. A shift in attitudes between suppliers and retailers towards recognizing both
as being in the same business is presented as a basic assumption (Dussart, 1998). For
instance, JIPECR defines category management as ‘. . . a distributor/supplier process
of managing categories as strategic business units, producing enhanced business
results by focussing on delivering consumer value’ (1995: vii). Others go as far as
 Value Creation and Category Management 525

Figure 1. Eight-step category management process

Source: JIPECR (1995).

arguing for suppliers to be category captains or category advisers, for example

Dussart (1998), O’Keeffe and Fearne (2002) and AC Nielsen (2006).
In an ideal setting category management relationships include high degrees of
collaboration based on mutuality and trust. ECR Europe (1997) outlines the
principles of cooperative relationships as: 1) the consumer is the common focus; 2)
mutually agreed objectives, strategies, tactics and performance measures, and
rewards support cooperative business goals; 3) the importance of trust and
information sharing; 4) the compatibility of trading partners’ expertise; 5) retailers,
suppliers and consumers all win (the ‘triple win’); 6) multifunctional access and
communication, and leadership at all levels; and 7) openness to change traditional
attitudes and relationships (ECR Europe 1997). In the ideal collaborative form the
decision process is owned by both supplier and retailer in a common process; hence
category management requires that trading partners play the ‘trust game’ (Kumar,
1996). Collaborative value creation is also emphasized as ideal, however without
being very explicit on value elements or what it is about collaboration that creates
value.
Whereas some category management literature tends to describe ideal forms of
collaboration (JIPECR, 1995; ECR Europe, 1997; AC Nielsen, 2006), academic
journal articles tend to emphasize issues on inherent barriers or paradoxes in these
relationships. Table 1 briefly presents literature on the barriers of category
management collaboration.
As Table 1 shows, the literature has dealt with barriers in category management
collaboration based mostly on the power-trust controversy or related theoretical
constructs, for example, conflicts of interest or opportunism. A few contributions
have pointed towards experienced benefits by suppliers and retailers, however they

Table 1. Barriers and dilemmas of category management collaboration
Author (year) Type of study
Dussart (1998) Review
Hogarth-Scott and Dapiran Qualitative interviews with
(1997) suppliers and retailers
Dapiran and Hogarth-Scott Qualitative interviews with
(2003) suppliers and retailers
Gruen and Shah (2000) Grounded theory approach
followed by test of model
through survey
Dupre and Gruen (2004) Expert interviews
Kurnia and Johnston (2001) Case studies
Kurnia and Johnston (2003) Case studies and survey
526
Barriers and dilemmas of category management collaboration
Category management is discussed as a translation of power or a forced
partnership in the sense that category management emphasizes a retailer’s
strategy and suppliers must accordingly develop and prioritize their
resources and marketing programmes. There are also problems of sharing
J. Aastrup et al.
data founded in traditional supplier-retailer rivalries.
Benefits are mainly experienced by or favour retailers, but category
management tend to develop relationships towards less emphasis on
dominating attitudes of retailers.
It is argued that category management can be seen as a movement from use
of coercive power towards expert or information power. This may appear
as cooperation based on trust but coercive power always lies beneath
Category management involves an inherent tension between retailers and
suppliers. It is shown that pre-conditions of brand versus sales conflict,
opportunistic behaviour and pre-planning agreements affect category
performance through the factors of category plan objectivity, retailer
system trust and category plan implementation.
Follows up on Gruen and Shah (2000) and develops a category plan
implementation model. Building trust between retailers and suppliers
is determined to be one of the crucial barriers to address.
It is argued that inherent characteristics of ECR work as barriers towards
adoption. In case studies on cross-docking practices it is found that
unbalanced division of benefits, costs and risks between manufacturers
and retailers is a barrier towards the necessary trust.
Follows up on Kurnia and Johnston (2001) in a more general study of ECR
adoption in Australia including category management. Six barriers are
revealed: 1) a lack of understanding of ECR and necessary skills; 2) different
motivations for activities; 3) differences in interests and perceptions;
4) unbalanced experience of benefits obtained; 5) retailers being more
powerful than manufacturers; and 6) lack of trust and information sharing.
 Value Creation and Category Management 527

are seen as an indicator of a power imbalance and do not specify what it is about
category management that creates value or benefits. Therefore, we argue that
category management collaboration requires further investigation based on value
creation in business relationships.

Value in Business Relationships

The concept of value for customers is central in marketing and marketing related
fields: it is the essence of the marketing process (Holbrook, 1994; Tzokas and
Saren, 1999); an important constituent of relationship marketing (Ravald and
Grönroos, 1996; Tzokas and Saren, 1999); and an important source of competitive
advantage (Woodruff, 1997; Anderson and Narus, 1998). Customer value is
studied in numerous contributions and from quite a number of different angles.
For extensive reviews of this literature see Holbrook (1994), Payne and Holt
(1999), Lindgreen and Wynstra (2005) and Wilson and Jantrania (1994). The
discussion below will firstly present basic characteristics of the value concept, then
discuss three approaches to value in relationships, and finally take up the issue of
relationship sacrifices.

Value as Benefits and Sacrifices Depending on Underlying Value Systems

A basic characteristic is that value is preference (Holbrook, 1994) in the sense that it
relies on an evaluative judgement in relation to sets of standards, criteria, reasons,
norms, goals or ideals. Most definitions emphasize this as a perceived trade-off
between benefits and sacrifices (Zeithaml, 1988; Anderson et al., 1993; Anderson and
Narus, 1998; Kotler, 2000; Ulaga and Chacour, 2001).
Furthermore, value is relative (Holbrook, 1994). The perceived trade-off between
benefits and sacrifices is comparative to competing products or in-house alternatives
(Holbrook, 1994; Anderson and Narus, 1999; Ulaga and Chacour, 2001). Also, it
consists of multiple components (Ulaga and Chacour, 2001), is based on individual
perceptions, criteria or underlying values (Woodruff, 1997; Neap and Celik, 1999;
Ulaga and Chacour, 2001), and is situational to moments or occasions (Woodruff,
1997; Ulaga and Chacour, 2001).
Much work emphasizes a customer’s usage situation and their underlying value
systems (Zeithaml, 1988; Anderson et al., 1993; Woodruff, 1997; Anderson and
Narus, 1999; Neap and Celik, 1999; Tzokas and Saren, 1997; Ulaga and Chacour,
2001; Flint et al., 2002). Most importantly for this paper is Woodruff’s (1997)
definition of value based on means-end chain thinking from Gutman (1982).
Woodruff (1997) arrives at a hierarchy of value elements making it possible to trace
linkages from attribute based value to a customer’s underlying value system, that is,
consequence based value and goal based value.
Against these basic characteristics of the value concept customer perceived
value in business markets can be defined as ‘the trade-off between the multiple
benefits and sacrifices of a supplier’s offering, as perceived by key decision makers
in the customer’s organization, and taking into consideration the available
alternative supplier’s offerings in a specific use-situation’ (Ulaga and Chacour
2001: 530).
528 J. Aastrup et al.

Value of Trust, Value Drivers and Value through Interaction

Whereas most contributions emphasize value from an acquisition or transactional
approach, other research efforts on the value of buyer–seller relationships emphasize
that elements of the relationship can be of value above and beyond what is actually
exchanged between partners (Tzokas and Saren, 1999; Ulaga, 2003; Lindgreen and
Wynstra, 2005). This represents a core assumption in an apparent ‘paradigm shift’
from transactional marketing to relationship marketing (Grönroos, 1994; Tzokas
and Saren, 1999) that has also been discussed by the IMP Group (Håkansson, 1982;
Axelsson and Easton, 1992; Håkansson and Snehota, 1995).
Conceptually this is very simply captured by Ravald and Grönroos (1996) who
argue that traditional marketing literature only considers one exchange episode and
ignores relational aspects. They define total episode value as consisting of episode
benefits and sacrifices as well as relationship benefits and sacrifices. In value literature
this manifests itself in three approaches that are not mutually exclusive and can be
labelled: 1) value of trust, 2) value drivers/value functions, and 3) value through
interaction, as detailed in Table 2.
A first perspective is to see trust as a valuable element. Ravald and Grönroos
(1996) argue that relationship benefits consist of elements of credibility, security,
trust and loyalty that all lead to profitable relationships. This line of reasoning in
which elements of trust and commitment are seen as central elements of relationship
value is well documented. For example, trust is an important element of perceived
relationship quality (Naudé and Buttle, 2000) and adaptations, trust and
commitment positively influence value creating functions in customer relationships
(Walter and Ritter, 2003); see also Morgan and Hunt (1994), Ganesan (1994),
Kumar (1996) and Grant (2004, 2005).

Table 2. Three approaches on the value of relationships

Value approach Authors

Value of trust:
. Trust and related elements such as
commitment, credibility, integrity,
security etc are seen as valuable
elements or determinants of
relationship value or long-term
relationships
Value functions/value drivers:
. Value is result of specific value
functions or value drivers that the
parties bring to the relationship
Value through interaction:
. Value is result of co-creation
processes between relationship parties
Ravald and Grönroos (1996), Grönroos
(1997), Grant (2004, 2005), Walter and
Ritter (2003), Morgan and Hunt (1994),
Ganesan (1994), Kumar (1996), Naudé
and Buttle (2000)
Walter et al. (2001), Walter and Ritter
(2003), Möller and Törrönen (2003),
Biggemann and Buttle (2005), Wilson
and Jantrania (1994), Lapierre (2005),
Ulaga (2003), Ulaga and Eggert (2006),
Liu et al. (2005)
Normann and Ramirez (1993), Wikström
(1996), Tzokas and Saren (1997, 1999).
 Value Creation and Category Management 529

Second, some literature more specifically considers the value functions

and drivers of relationships, contrary to the literature above that emphasizes
relationship elements such as trust and commitment. For example, Walter et al.
(2001) and Walter and Ritter (2003) distinguish between direct functions (profit,
volume and safeguard) and indirect functions (innovation, market, scout and
access) of relationships. Similarly, Biggemann and Buttle (2005) outline four
different forms of value that a relationship can deliver: personal, financial,
knowledge and strategic value.
Empirically, value drivers have been identified by Lapierre (2000), Ulaga (2003),
Liu et al. (2005) and Ulaga and Eggert (2006). For instance, Ulaga (2003) used
grounded theory to identify product quality, service support, delivery, supplier
know-how, time-to-market, personal interaction, direct product costs and process
costs as value drivers. Ulaga and Eggert (2006) found that sourcing benefits (that is,
service support and personal interaction) and operations benefits (namely, supplier
know-how and time to market) are strong contributors to overall relationship value,
while direct costs are least important.
Finally, as a third approach, the literature has explored how and why interactions
can add to or co-create value. Normann and Ramirez (1993) argued that firms do
not add value along given value chains; instead activities are part of a value creating
system with different economic actors co-producing value. Tzokas and Saren (1997,
1999) go one step further and argue that interaction is a necessity for value to be
produced. The linking of value chain activities represents the mechanisms that create
value (Tzokas and Saren 1997), and relationship platforms between relationship
parties are identified as the areas of activities that can possibly contribute to the
value co-creation process. A similar argument is made by Håkansson and Snehota
(1995); they define resources as a relational phenomenon in the sense that no element
is a resource without a known use. The value of resources lies in their use potential;
and heterogeneity in use means that value is dependent on which resources are
combined.

Relationship Sacrifices
The emphasis in the literature is on benefits, despite the importance and frequency of
sacrifices in definitions of customer perceived value. As value is relative (Holbrook,
1994) all identified value drivers and functions (Walter et al. 2001; Ulaga and Eggert,
2006) can be seen as possible sacrifices relative to alternatives. However, specific
sacrifices of episodes and relationships have been identified in the literature. Kotler
(2000) distinguished between monetary, time, energy and psychic costs perceived.
Ulaga (2003) derived direct product costs or price and process costs including
inventory management, order-handling and incoming inspections. These were later
grouped into direct costs, acquisition costs and operations costs (Ulaga and Eggert,
2006). This is close to the total cost of ownership concept (Ellram, 1995) that besides
direct price includes inventory cost, transaction costs and costs associated with poor
quality and delivery failures.
Ravald and Grönroos (1996) and Grönroos (1997) distinguish between direct,
indirect and psychological relationship costs. Psychological relationship costs are
additional to the costs identified above and are associated with uncertainties about
530 J. Aastrup et al.

conflicts and contingencies affecting the relationship (Grönroos, 1997). Similarly,

Lapierre (2000) outlined conflicts as relationship related sacrifices in addition to
price, time and efforts.
Ford (2003) takes the IMP’s view that relationships should be seen also as burdens
(or sacrifices). Relationships are unruly as they necessitate adaptations and reactions
to factors not fully controlled. Hence, relationships mean giving up some freedom.
Also, relationships are undetermined as they have a time dimension that is subjective
and uncertain. Relationships are demanding as they always demand time and effort.
Furthermore, relationships are exclusive in the sense that giving priority to specific
counterparts tends to exclude others. Finally, relationships are sticky as behaviour in
a relationship is connected to other relationships.
Relationships being unruly and exclusive relate to issues of dependency and power.
Developing closer relationships affects the balance of dependency and power which
can also be perceived as benefits or sacrifices (Emerson, 1981). Power can manifest
itself in two ways; in the division of surplus value (Cox, 1999, 2004; Hingley, 2005) or in
the control of how to create value (El-Ansary and Stern, 1972; Coughlan et al., 2001).
Assuming that business essentially is about appropriating value for oneself, an
inevitable conflict area exists in relationships when both parties seek to maximize their
share of surplus value despite cooperative efforts to create this surplus value (Cox,
1999, 2004). In contrast, earlier research emphasizes the ‘benefit’ of power in
coordinating, adapting and integrating marketing decisions and variables to pursue
one’s own strategies and goals (see Stern, 1969 or Frazier and Summers, 1986).
Thus, benefits for appropriating value created in relationships as well as benefits
from controlling how value is created also represent potential sacrifice elements to
consider when engaging in closer relationships. The next section synthesizes the gaps
in the category management literature addressed above by applying conceptual
insights from the value literature addressed in this section.

Category Management Interactions and Value Creation—Model and Hypotheses

Our overall consideration is whether or not a retailer should engage in closer
collaboration with suppliers to manage categories, from the point of view of the
retailer’s perceived value. According to the discussions of value above we regard this
consideration as a trade-off between benefits and sacrifices. Further, we adopt
Woodruff’s (1997) distinction between attribute based and consequence based value
from the retailer’s perspective. We thus pursue value through interaction reasoning;
therefore trust is not a valuable element but a pre-condition for value creating
interactions. The issue of value drivers or value creating functions is a less explicit
part, however it implicitly underlies the reasoning in Hypotheses 1–3 discussed below
regarding research and managerial implications. Our proposed model and resultant
hypotheses are shown in Figure 2.

Creation of Value Through Closer Category Management Interaction and the

Necessity of Trust
The eight-step model in Figure 1 can be considered as a domain of planning and
implementation activities that can potentially benefit from closer interaction and
 Value Creation and Category Management 531

Figure 2. Proposed model of benefits and sacrifices from category management interactions

adaptation between supplier and retailer (Tzokas and Saren, 1997). It can also be
seen as a model linking category activities explicitly to consequences and ends in the
retailer’s value system (Woodruff, 1997). Specific benefits from closer interactions
will be discussed below relative to three issues: 1) the use of complementary resources
and capabilities; 2) a common understanding of category structures, roles, objectives
and strategies and explicit linking to retailers’ value systems; and 3) the co-
ordination and adaptation of activities.
Category management is fundamentally an information-driven process (Dussart,
1998; AC Nielsen, 2006), and throughout the eight steps there is a heavy reliance on
applying information of different formats and perspectives. Possible inputs to the
different steps include point-of-sale (POS) data, consumer insights on motives,
preferences and purchase habits in a category (through basket analysis, household
panel data, focus groups and so on), financial analysis of categories, and market
analysis of suppliers’ market shares and retailers’ actual and fair shares (JIPECR,
1995; Qureshi and Baker, 1998; Johnson, 1999; Dewsnap and Hart, 2004; AC
Nielsen, 2006). Efficiency considerations have relied mainly on sales data while
ideally category management applies in-depth insights on the consumer to support
532 J. Aastrup et al.

marketing decisions for a category (Johnson, 1999; Gruen 2002; Dewsnap and Hart,
2004).
The information resources applicable in category management are not evenly
distributed between retailers and suppliers (Johnson, 1999; Dewsnap and Hart,
2004). Retailers control very detailed POS data; they hold contribution and profit
data, and information on supplier share. Suppliers on the other hand may hold
deeper insight into consumer behaviour and behavioural trends in the category.
Information from third parties is also accessible, for example, market data and panel
data. Therefore, the thrust of category management is that closer interaction
between retailers and suppliers through the different steps will be based on richer
information and more nuanced or detailed views. This should lead to better
understanding of consumers, better understanding of categories, better category
definitions, better informed category role and strategy assignment, and ultimately
more optimal category tactics in relation to the desired consequences of retailers, for
example, traffic, profits, excitement. Thus;

H1: Through closer interaction on category management suppliers and

retailers will use a richer and more nuanced amount of information to
improve retailer perceived value regarding desired category consequences.

Much coordination of activities takes place between retailers and suppliers but is
not necessarily based on explicitly communicated category definitions, assigned
category roles, category objectives and strategies. A supplier–retailer preplanning
agreement is one success factor found to affect category performance (Gruen and
Shah, 2000). Similarly, suppliers must align strategies and marketing programmes
with the retailers’ category roles and strategies (Dussart, 1998), as well as committing
resources to retailers’ destination categories (Dupre and Gruen, 2004).
Category management begins with the retailer’s strategy (AC Nielsen, 2006) and in
this manner the eight-step process aims at linking the retailer’s overall strategies and
objectives with the category tactics and category activities. Category definitions,
category roles, and category strategies should be communicated from retailer to
supplier as desired consequences through the category management process, or
emerge as a result of supplier–retailer interaction which is closer to the ideal (ECR
Europe, 1997). This explicit alignment is a necessary common ground for developing
and implementing strategies and tactics. The terminology of category roles and
category strategies should be applied in the planning process to assure proper and
explicit linkages between the overall strategies and objectives of the retailer, the
desired consequences (such as traffic generation or profit building) and the actual
activities in the category. Thus;

H2: Through closer interaction on category management suppliers and

retailers will better communicate and align category definitions, roles
and objectives to improve retailer perceived value regarding desired
category consequences.

Ultimately, value added from closer interactions in the category management

process appear from the implementation of strategies and tactics through
 Value Creation and Category Management 533

coordinated and adapted activities of retailers and suppliers (Gruen and Shah, 2000;
Dewsnap and Hart, 2004; Dupre and Gruen, 2004). Category activities of
assortment, pricing, promotion, merchandising and supply chain management
(AC Nielsen, 2006) appear as activities in the retailer’s domain, but rely on activities
in the suppliers’ domain. Assortment improvements rely on supplier activities
regarding new product development or promotion and positioning of brands; a
retailer’s promotional campaign relies on a supplier’s ability to take this into account
for production and delivery planning. Therefore, a potential major benefit of closer
retailer-supplier interactions is better coordination and adaptation of activities in
these two respective domains. The ideal of category management is retailer-supplier
coordination of these activities, for example, product development and positioning of
new products adapted to agreed upon possibilities in the retailer’s assortment. Thus;

H3: Through closer interaction on category management suppliers and

retailers will improve coordination and adaptation of activities in relation
to tactical implementation in the category to improve retailer perceived
value regarding desired category consequences.

As noted above, trust is seen as valuable in itself (Ravald and Grönroos, 1996;
Naudé and Buttle, 2000). The perspective taken here emphasizes value ‘through’
trust, that is, trust is seen as an enabling element in the interaction necessary for
added value creation. Collaborative category management interaction based on trust
and mutuality was presented as an enabling component in the original industry
reports (JIPECR, 1995; ECR Europe, 1997), and characteristics outlined above on
category management interactions, for example sharing information and aligning
strategic plans, underscore this necessity of trust and mutuality.
Trust can be defined as ‘a willingness to rely on an exchange partner in whom one
has confidence’ (Moorman et al., 1992: 315). Ganesan (1994) and Doney and
Cannon (1997) distinguish between two components of trust: credibility and
benevolence. Credibility is based on the expectancy that partner A and partner A’s
expertise can be relied on to fulfil the word or written statement of partner B.
Benevolence on the other hand is the extent to which partner A is believed to be
genuinely interested in partner B’s welfare and is motivated to seek joint gain.
As noted previously, several authors have addressed issues related to trust as
major barriers to category management interaction. They report on inherent
problems and paradoxes compared to the necessity of trust and mutuality, and
argued that major barriers for ‘close partnerships’ lie in unbalanced power,
differences in interests and incentives as well as imbalanced division of risks; costs
and benefits; a perceived risk of opportunism and a lack of trust in partners; and a
lack of trust in category management benefits. Hence, issues related to trust
represent an ideal relationship atmosphere enabling potential benefits of closer
category management interaction. However, barriers exist in issues relating to the
lack of trust. Thus;

H4a: Higher degrees of credibility and benevolence between retailer and

supplier will increase sharing and use of complementary information
resources and capabilities in category management related interactions.
534 J. Aastrup et al.

H4b: Higher degrees of credibility and benevolence between retailer and

supplier will increase explicit communication and alignment of category
aims and strategies in category management related interactions.

H4c: Higher degrees of credibility and benevolence between retailer and

supplier will increase operational coordination and adaptation of
activities in category management related interactions.

The Intervening Effect of Category Roles and Purpose of Brands

The value creating potential of closer category management interaction may depend
on the type of product and type of category. Dhar et al. (2001) showed that the effect
of marketing tactics on category performance depends on the characteristics of the
category in consumer related terms. Similarly, we expect that a retailer’s perceived
value from closer category management interaction will depend on the role the
category plays for the retailer as well as the role and importance of the single
products and brands.
Category management differentiates between four generic category roles: destination,
routine, occasional/seasonal and convenience (JIPECR, 1995; AC Nielsen, 2006).
Destination categories are categories through which the retailer differentiates and
positions itself as the store of choice. Routine categories are categories through which
the retailer wants to be one of the preferred providers. Occasional/seasonal categories
change importance in the retailer positioning depending on seasonal (for example,
summer) or occasional (for example, Christmas) circumstances. Convenience categories
are necessary for the retailer in order to have a full assortment, but do not represent
categories used for differentiation. Hence, different categories have different importance
for the retailer in order to obtain its desired market position, that is, they are used to
achieve different consequences. Thus, we expect that retailer perceived benefits of closer
interaction will be stronger in the case of categories of higher strategic importance for
retailers, for example destination categories. Thus;

H5a: A higher strategic importance of a category will increase retailer

perceived potential value from closer category management related
interaction regarding desired category consequences.

The type of product may also influence perceived benefits. Most research deals
with relationships between providers of branded goods and retailers (Ogbonna and
Wilkinson, 1998; Hogarth-Scott, 1999), however private labels and private brands
have become increasingly important for retailers (Burt, 2000). Branded products
contribute differently to their categories. Some are considered traffic builders, others
profit builders, while some brands create excitement. Brands also differ in the degree
of brand loyalty shown by consumers that affects the ‘freedom’ of the retailer to
exclude it from the category. Hence, we would expect that the more important a
brand is for the retailer’s category in terms of loyalty or desired category
consequences, the more value creation potential will be perceived from category
management related interaction.
 Value Creation and Category Management 535

However, manufacturer brands cannot in themselves differentiate a retailer from

others unless exclusivity is given; this is one reason that the strategic use of private
label brands has evolved (Laaksonen and Reynolds, 1994; Burt, 2000). Private
brands are increasingly being used as brands competing with brand leaders (Bhasin
et al., 1995; Burt, 2000) to establish store differentiation and loyalty. Private brands
have evolved from being low cost/low quality generics used to appropriate larger
margins versus manufacturers’ brands (Ogbonna and Wilkinson, 1998), to off-setting
supplier power by providing alternative products or margin gaps being used in
negotiation (Bhasin et al., 1995). Hence, the retailer’s strategic contribution from
private brands considerably affects retailer perceived value from closer category
management interactions. Thus;

H5b: A higher perceived strategic importance of traded brands (whether

manufacturer brands or retailer brands) will improve retailer perceived
potential value from closer category management related interaction
regarding desired category consequences.

Power Advantage and Retailer Sacrifices

Value, according to definition, is concerned with benefits and sacrifices, and in light
of the value concept it must be questioned whether the issue of closer category
management collaboration and relationships meshes with elements of retailer
perceived sacrifices. Closer and more frequent interactions with suppliers take time
and effort since the category management and the eight-step model is time-
consuming. An average buyer in Danish grocery retailing has relationships with
about 80 suppliers and additional time and resources for these relationships are
suppressed or lacking.
Getting into closer and more frequent category management interactions also
means giving up some freedom as it implies greater commitment and dependency
towards suppliers (Ford, 2003). When engaging in closer interactions retailers allow
suppliers to contribute value drivers other than the traded products and brands
(Ulaga, 2003), and this increases the dependency of retailers towards them (Emerson,
1981). It also means relationships become more exclusive as closer interactions give
priority to specific counterparts, especially when engaging in collaborative formats
such as category advisers, category captains and preferred suppliers (Dussart, 1998;
O’Keeffe and Fearne, 2002).
These issues of dependency and exclusivity affect the power balance and there seems
to be a widespread consensus that retailers are the more powerful partner in relation-
ships with suppliers and manufacturers (Akehurst, 1983; R. Grant, 1987; Dawson and
Shaw, 1990; Kumar, 1996; Howe, 1998; Ogbonna and Wilkinson, 1998; Burt, 2000;
Dapiran and Hogarth-Scott, 2003; D. Grant, 2005; Hingley, 2005). The main factors of
retailers’ power advantage are a concentration in retail structures, control of
distribution activities, control of information and the introduction of own brands
(Ogbonna and Wilkinson, 1998; Dawson and Shaw, 1990; Fernie and Sparks, 2004).
This power advantage can benefit retailers in the division of surplus value (Cox,
1999, 2004; Hingley, 2005) and in their having control and influence regarding
536 J. Aastrup et al.

channel decisions (El-Ansary and Stern, 1972; Coughlan et al., 2001). Thus, any
change to elements of the power balance can be seen as sacrifices for retailers in
terms of losing negotiating power and giving up full control of important marketing
variables. Thus;

H6: Through closer category management interaction retailers will have to

invest more time and resources into specific relationships thereby
increasing retailer perceived sacrifices.

H7: Through closer category management interaction retailers become more

dependent on, and have to give more exclusivity to, suppliers thereby
negatively affecting the retailer’s negotiation power advantage and
affecting the division of surplus value.

H8: Through closer category management interaction retailers become more

dependent on, and have to give more exclusivity to, suppliers thereby
negatively affecting the retailer’s control of the category’s marketing
variables.

Conclusions, Managerial Implications and Further Research

This article has applied insights on the value concept to develop an understanding of
category management in retailer–supplier relationships. Category management
cooperation is dealt with extensively in the literature based on the power–trust
controversy. However, little work has been done relating to category management
value creation even though this is highly emphasized in normative descriptions of the
phenomenon.
The value literature has been discussed in relation to business markets and
insights were applied in a literature-based discussion of category management
interactions between retailers and suppliers in FMCG sectors. From this discussion
this study has suggested that it is through the use of complementary information
resources, and the explicit linking of category efforts to retailer strategies and
desired consequences that closer retailer-supplier interactions hold the potential for
increased value creation for retailers. Even if all eight steps in the process are not
completed, each step can create benefits for both parties involved, for instance
tactical coordination.
However, aligning efforts with retailer strategy and applying complementary
information resources requires certain efforts. The presence of trust represents a
necessary pre-condition for this closer interaction—however it may be a designated
type of trust, for instance limited to the necessary coordination of tactical efforts
without the strategic alignment earlier in the process. Closer interaction meshes with
a retailer’s perceived sacrifices of relationship efforts, losing negotiation power and
giving up full control of important marketing variables in the category. Hence, an
overall trade-off between benefits and sacrifices for retailers exists as a trade-off
between the benefits of closer category management interaction and the sacrifices of
giving up full category control and negotiation power. It is further argued that a
 Value Creation and Category Management 537

higher strategic importance of category and brands for retailers will increase the
perceived benefits from closer category management interactions.

Managerial Implications
Implications for management relate to two issues: how the ‘negotiation model’ or
‘relationship model’ between suppliers and retailers can be developed towards
harvesting the full benefits of category management interactions, and how suppliers
can position themselves as value creating partners, that is, preferred suppliers or
category advisers.
Several challenges for developing new negotiation models appear. New negotia-
tion models must make interactions possible in initial phases of the category
management process, as interactions cannot simply be limited to tactics,
implementation and reviews. It is through these initial phases that complementary
information resources and the alignment of objectives hold the largest potential to
add value. New negotiation models must also ensure an atmosphere allowing
communication and alignment of category aims and strategies. Establishing trust
and mutuality has been the ‘standard answer’ to this problem.
However, other governance mechanisms for cooperating in unbalanced relation-
ships must be considered; this issue represents a ‘fact of life’ in the industry and
meshes with retailers’ perceived sacrifices. Thus, new negotiation models must also
take into account retailer sacrifices. They must build on system trust, that is, retailer
perceived benefits, however they must also consider how the benefits can be achieved
in power unbalanced relationships without negating retailer control of category
variables as well as the negotiation power of retailers.
There are also implications in terms of how suppliers can position themselves as
value creating partners. An identification of the value drivers and value functions in
category management and the supplier’s underlying capabilities should be the base
to build a position as a value creating partner. Basically, suppliers must document
and convince retailers of the benefits of using suppliers more intensively in the
category process, that is, they must build retailers’ system trust. They have to invest
in and develop their information resources and complementary skills in a way to add
value through the category management process. Many information and data
sources are available (if shared) and hence the capabilities of analysing and applying
this data into valuable inputs to category planning can be crucial.
Creating retailer perceived value implies that the efforts, initiatives and advice of
suppliers in the category management process starts with the strategic aims and
category roles of the retailer, rather than the perspective of the supplier’s brands.
This might represent a necessary change in the capabilities and mind-set of suppliers.
Further, suppliers must ensure that their tactical and operational resources and
efforts are prioritized in accordance with areas of activities relevant for the retailer.

Research Limitations and Further Research

Our arguments have been derived from concepts in the literature and as such are of a
theoretical nature. Empirical research needs to explore these issues more thoroughly.
The model and hypotheses derived in this article can serve as a starting point for
538 J. Aastrup et al.

empirically exploring what it is about category management interactions that

generate perceived benefits and sacrifices for retailers. For example, are potential
benefits of closer interaction present in retailer perceptions? If so, why and based on
which value drivers? Or, do perceived sacrifices in terms of resource requirements
and loss of category control represent major barriers for closer category manage-
ment interaction? Answers to these questions are important for further work on the
normative model on how to collaborate on category management.
Qualitative and quantitative research set-ups have complemented each other well
in the sparse previous empirical research on value creation in business markets.
Similar approaches specifically for category management and retailer-supplier
relationships would be valuable for gaining further insight into the identification of
types of benefits and sacrifices of category management interaction as well as for the
formalized testing of our proposed hypotheses. Qualitative or grounded theory
approaches in studies of retailers can reveal underlying value drivers of category
management relationships as well as the perceived benefits and sacrifices of working
closer together with suppliers on category management related issues.
Further, the present practice of category management interaction can be
addressed qualitatively involving both suppliers and retailers. Such research can
reveal how and whether present interactions take advantage of complementary
information resources, and how and whether interactions that secure these efforts are
anchored in retailer strategies. Such qualitative approaches are a natural first step for
future research since perceived value from category management relationships is
presently under-researched.
Further, the discussions and research agenda presented in this article might also be
applied in a study of suppliers’ perceived benefits and sacrifices to obtain a more
complete picture of the phenomenon. Supplier’s positioning towards various
retailers might depend upon the type and depth of the potential relationship to
the specific retailer. Therefore, investigating various positioning strategies and
tactics, may reveal future potential for further collaboration and create possibilities
for learning by suppliers and retailers, utilizing insights from other relationships.
Also, the possible clash between retailer brand building, including private label and
private brand strategies and supplier brand strategies, must be explored in order to
identify future possibilities for collaboration, competition and co-opetition.

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