“There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.” — Sam Walton.
As pointed out by Sam Walton, the customer is the boss, the only boss. To attract and retain her, retailers must align their retailing mix to cater to her needs and preferences. To achieve this, they need to develop strategies and processes to manage their business in a customer-centric manner. These strategies and processes fall under the realm of category management.
The objective of this chapter is to provide retailers with a framework on how to manage their business, and for suppliers to understand the dynamics of trade marketing.
The topics covered include an overview of category management, its processes, trade marketing, the partnership between retailers and manufacturers, category roles, category strategies, retail mix and space management.
The Inulas case study at the end of Part VI, is crafted to impart a deeper understanding of the category management process, and the application of space management.
Categories are the building blocks of a retailer’s business, in much the same way as brands are the building blocks of a manufacturer’s business. To manage their business, retailers need to manage their categories in a cohesive manner so that they are better placed to attract and retain customers. This is the premise of category management.
As depicted in Exhibit 32.1, category management is a continuous ongoing process concerned with a cyclical sequence of tasks — refining category strategies and tactics, aligning the retail mix, executing plans, and reviewing performance.
At the onset, what is required is a sense of direction — a strategy. The retailer’s business strategy is a long-term course of action that the retailer is committed to. It sets a direction that distinguishes its chains from its competitors.
Like any enterprise, the retailer has a collection of strategies — category strategies, sourcing strategy, technology strategy. Its business strategy is the overarching strategy that harmonizes all these constituent strategies.
A sound business strategy is based on a deep understanding of shoppers, and full appreciation of the retailer’s purpose and core competencies. It encompasses crafting the retail chain’s identity and value proposition, partitioning shoppers into segments and identifying which target segments to pursue with what categories, and distinctly positioning the retail banner in the minds of target shoppers.
Category strategies are established to fulfil the chain’s value proposition, and clearly differentiate its banner from competition. Crafting strategies involves a number of tasks — defining departments and categories, assigning category roles and establishing goals, benchmarks and objectives.
Good strategies tend to be stable, yielding competitive advantage over the long term. However, as markets evolve, retailers need to continually tune and refine their strategies.
Category strategies and tactics are translated into a coordinated programme that aligns the retail mix with the retailer’s imperatives. The retail mix is the set of tasks that are required to manage categories in the store. It includes:
The shelf, Exhibit 32.2, is the retailing arena; it is where retailers execute their strategies and tactics. Elements of the retailing mix comprising space, assortment, merchandising, communication, price and promotions are aligned at the shelf into a coordinated programme designed to achieve desired outcomes.
The category review evaluates the retailer’s performance to assess the impact of category strategies and tactics, and the effectiveness of the retailing mix. It identifies opportunities and threats, and it reveals the retailer’s strengths and weaknesses in relation to its competitors. The objective is to identify business issues and set imperatives and targets to address these issues. Success hinges on how well the category managers can channel their limited resources to those initiatives that offer the best return on investment.
Category management is an ongoing process of business improvement. Category managers review the progress of their categories on a regular basis identifying opportunities and threats as they arise. Tactics and strategies are tweaked to meet the requirements of a changing retail environment. The retail mix is refined so that the retailer is better aligned to address business issues and tap market opportunities. And the retail shelf remains, perpetually, in a state of flux as the retailer implements plans and executes strategies.
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The Plannogrammer is an experiential learning facility for category managers, trade marketers, and retailers in consumer markets. Ideally suited for hybrid learning programmes, Plannogrammer imparts hands-on training in the planning and evaluation of promotions and merchandising.
It supports a collection of simulation and analysis platforms such as Promotions and Space Planner for optimizing space and promotions, Plannogram for populating shelves and merchandising, a Due To Analysis dashboard that decomposes brand sales into the factors driving sales, and a Promotion Evaluator to evaluate the volume, value and profit impact of promotion plans.