Category Strategies

Category Strategies

Category Purchase Dynamics

Traffic Building High share, frequently purchased, high % of sales.
Transaction Building Higher ring-up, impulse purchase.
Profit Contribution Higher gross margin, higher turns.
Cash Generating. Higher turns, frequently purchased.
Excitement Creating Impulse, lifestyle oriented, seasonal.
Image Creating Frequently purchased, highly promoted, impulse, unique items, seasonal.
Turf Defending Used by retailers to draw traditional customer base.

Exhibit 32.8   Category strategies (Source: TPG).

Category strategies are crafted in the context of the category’s role, and in accordance with the retailer’s business strategy. They are geared towards generating more revenue and profit for the retailer.

These goals may be achieving through one of the following means — by attracting and retaining shoppers (traffic), by increasing their basket of purchases (transaction volume and value), and by improving the margins made in each transaction. The category strategies listed in Exhibit 32.8, are essentially combinations of these fundamental ways that the retailer can make more money.

These strategies may be adopted for the category as a whole, or for a segment or a brand. They may apply across an entire retail chain or across store clusters. They collectively form the retailer’s overall blueprint to grow its business by attracting and retaining shoppers.

The objective of the traffic builder is to draw shopper into the stores. These tend to be products from the destination categories.

Knife brand cooking oil at Carrefour (Singapore) served as a good example of the use of a “loss leader” to build traffic. Carrefour wanting to make a bold statement (presumably: “We are not just a French hypermarket”), priced this local brand at a level lower than the price at which they purchased it.

Incidentally Lam Soon, the manufacturer of Knife cooking oil, seemingly under pressure from retailers competing with Carrefour, took the hypermarket to court for “price fixing”. The court case, which illustrates the authority of retailers, was won by Carrefour.

In the context of category strategies, when examining the P&L statement, bear in mind that what it conceals is often more important than what it reveals. The statement would show losses for a loss leader, and poor margins for traffic builders in general. What it fails to show is the beneficial impact of the influx of traffic.

Shoppers tend to buy a basket full of products including the ones that attracted them into the store. And if the retailer has a balanced portfolio, many of the other products in their basket are generating good profits. So, the loss leader strategy might be profitable even as the loss leading product makes losses, and more so in the future if it succeeds in converting new shoppers to regular shoppers at the chain.

Considering the importance of acquiring and retaining shoppers, traffic builders are of great importance. The strategy involves selecting a few big, influential brands, and enticing shoppers through low prices and/or attractive promotions. And it works best when the traffic builder is also a transaction builder.

Transaction builders are products that shoppers buy during their heavy shopping trips. For instance, rice or cooking oil.

When shoppers, in a rice-eating country like India, Thailand or China buys rice, it is observed that they spend significantly more; their basket size on these occasions is well above average. Because this is good for business, the retailer is particularly keen to attract shoppers on these heavy shopping trips, and they can do so by promoting the transaction building products.

The term transaction builder also refers to products that are somewhat peripheral to the category that shoppers buy on impulse. They stretch the shopper’s purchase basket. For example, speciality flavours in soft drinks or pet supplies in pet care.

Profit generators are high margin products. Retailers need to rely on these products to compensate the low margins from traffic builders.

A product that generates cash would be one where the sales value (price × volume) is high. These are essentially revenue generators.

Excitement creating products tend to be trendy and innovative products. Some of these may also be occasional products — for instance the Harry Potter series, or chocolates in gift packs specially designed for Valentine’s Day.

One of the objectives of image enhancing products is to attract new shoppers. Like turf defenders which are category strongholds that the retailer defends, image enhancing products also help retain shoppers.

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