Category Management — Review

The objective of the review is to craft action plans that address issues and take the business to the next level. This, broadly speaking, is a three steps process: identifying issues, investigating them and chalking out the plans.

Identifying Issues

An issue may be an opportunity or a threat. To identify key issues the category management teams need to focus on the key health indicators. They are usually empowered with a suite of dashboards that provide at-a-glance view of the performance of the chain and its stores. Collectively, these dashboards comprise a store health kit that is made up of a wide range of measures, including the following:

• Shopper: Penetration, retention (measures in terms of repeat usage rate or repeat decay rate), spend per shopper, banner loyalty.
• Store: Sales, share, shopper penetration in-store, spend per shopper, store loyalty.
• Transactions: Sales volume and value, market share.
• Profitability: Gross profit, gross margin.
• Inventory: Turns × Earns or Gross Margin Return on Inventory Investment (GMROII).

These measures relate to the factors that make the retailer’s business tick — attracting and retaining shoppers, increasing their transactions, and improving the margins made in each transaction.

The notion of turns × earns is central to the retailer’s business model. This refers to the need to maximize the gross margin (earn) and the number of times they can earn that margin (velocity of inventory turn) (Exhibit 31.9). Annual turns are calculated by dividing the sales (cost of material sold) by the inventory (average inventory value).

Turns × Earns is equal to the GMROII:

$$ GMROII = \frac{Gross \, Margin}{Inventory} $$ $$ \qquad \qquad = \frac{Gross \, Margin}{Sales} \times \frac{Sales}{Inventory} = Earns \times Turns $$

To identify issues, one needs to search for significant shifts in performance trends. Health measures that lie below target or benchmark are a concern. Typically when an issue arises, it is reflected across multiple measures.

Investigating Issues

Whereas dashboards help identify issues, to investigate them the team needs to drill deeper into the data. This process of exploration must remain focussed on the key issues. One of the perils of our data-rich age is the ease of drowning in the digital black hole. Over-analysis can lead to the point where the issue can no longer be recognized (the "analysis paralysis" syndrome).

A focussed investigation means diagnosing the issue and pinpointing the problem or opportunity areas. For example, suppose the retailer has lost share in the category due to decline in penetration. To investigate this issue one should determine which stores are affected, which segments and brands are affected, what is the profile of the shoppers that the chain is losing, where are they going to, how do their purchases in competitors’ stores compare with purchases in the chain’s stores, and which elements of the retailing mix (price, promo, assortment, distribution and stock) might have contributed to the loss.

The issues once diagnosed, must lead to recommendations and action plans that entail refining the retailing mix. To arrive at good action plans the team needs to keep asking tough rhetorical questions: What needs to be done to resolve the issues? How do we take the business to the next level? They are crucial because without action plans all we have is a theoretical exercise, i.e. an overhead.