What is a Category Killer?
A category killer is a big box retail store that dominates the category it specializes in, by offering a wide product selection at the best prices in the market.
They are called category killers, because they tend to acquire a large market share by selling at attractive prices, which drives a lot of smaller specialty retailers in the same category out of business, as they cannot sell products at the same prices.
The Business Strategy
The business strategy followed by most category killers is the cost focus strategy.
According to the cost focus strategy, the business targets a narrow market, which is the market of the specialty or category, and tries to offer a wide variety of products to this market, at the most competitive prices.
Because there is no differentiation in this strategy, and typically the competition is based mainly on price, a lot of category killers started facing pressure with the rise of other mass-market retailers who follow the cost leadership strategy, such as Walmart and Amazon.
These mass-market retail businesses, while not specializing in the category, were able to use their high bargaining power obtained from their high sales volume, to source products at even lower prices and pass those savings to their customers, and thereby neutralizing the main competitive advantage of most category killers.
Category Killer Vs. Specialty Store
A category killer is typically considered a specialty retailer, but not every specialty retailer can be considered a category killer.
For example, a local hardware store is a specialty store, while Home Depot would be considered a category killer for the same specialty of hardware and home improvement.
A small toy store is a specialty store, but Toys R Us would be the category killer of this specialty.
Instead of following a cost focus strategy, a lot of successful specialty retailers follow a differentiation focus strategy, where they focus on building unique, differentiated products, providing a great customer experience and building a unique brand that attracts and retains loyal customers.
Such a differentiation strategy provides those specialty stores with a protection from category killers and helps them build pricing power.
Category Killer Examples
Examples of category killers include:
- Home Depot: Home Improvement
- Toys R Us: Toys
- Office Depot: Office Supplies
- Best Buy: Electronics
- Barnes & Noble: Books
- PetSmart: Pet Supplies
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