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 31.8   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 the twin goals of 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 31.8, are essentially different combinations of these three 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. The Knife brand cooking oil at Carrefour (Singapore) serves 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 was won by Carrefour.)

When examining a 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 is does not show is the profit that is generated by the shoppers that the traffic builders attract.

Shoppers do not just walk out of the store with one product, they tend to buy a host of other products, and their basket as a whole is generating revenue and profits for the store.

Consequently, 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. It works best when the traffic builder is also a transaction builder.

Transaction builders are primarily products that shoppers buy during their heavy shopping trips. For instance, rice or cooking oil. When a shopper, in a rice-eating country like India, Thailand or China buys rice, it is observed that she spends significantly more; her basket size on these occasions is well above average. The retailer is therefore particularly keen to attract her when she intends to buy transaction building products like rice, because her basket on those trips will be relatively large, and that is good for business.

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 (e.g. premium wines and some facial care 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 on Valentine’s Day.

One of the objectives of image enhancing products is to attract new shoppers. Like turf defenders they also help to retain shoppers.

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