Category Management

 

Exhibit 31.1   Category management process.

 “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.

 

The customer according to Sam Walton is the 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 process fall under the realm of category management.

The objective of this chapter is to provide retailers 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.

Category Management Overview

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.

Strategy

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 their banners from competition. Crafting them involves a number of tasks — defining departments and categories, assigning category roles and establishing goals, benchmarks and objectives.

Strategies are not revamped every year. On the contrary, 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.

As a continuous ongoing process, category management is concerned with refining category strategies and tactics, aligning the retail mix, executing plans and reviewing performance. The cyclical sequence of tasks depicted in Exhibit 31.1 constitutes the process as a whole.

Retail Mix

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:


Exhibit 31.2   Retailers execute strategies and tactics on their shelves.

  • Merchandising: Product assortment and space allocation should blend with the category’s role, and meet the needs and preferences of target shoppers.
  • Pricing: Products need to be priced in accordance with the banner’s positioning, and the category’s roles and strategies, taking financials into considerations. Low prices are a great attraction for shoppers, but they also impact heavily on profit margins.
  • Promoting: Products are promoted to attract and retain target shoppers. The promotions should blend with category tactics/strategies.
  • Store Maintenance: Stores are well maintained so that they provide appropriate service levels and quality standards to cultivate the desired shopping environment. Retail chains need to optimize their investment in these areas.
  • Location: Stores are located within proximity of target shopper. The decision to open/close outlets reflects the critical trade-off between building the chain’s presence and offering shopper convenience, and the cost of doing business. It requires alignment with the retailer’s business strategy and financial goals.

Execution

The shelf 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.

Review

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 reveals the retailer’s strengths and weaknesses in relation to its competitors. The objective is to identify business issues and set imperatives (with objectives and targets) that 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 should not be treated as a mega project to re-engineer or re-invent. Instead it should be regarded as 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 in a perpetual state of flux as the retailer implements plans and executes strategies.

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