Partnership between Retailers and Manufacturers

“Every great business is built on friendship.” — JC Penny.

Category management is essentially the management of a collection of brands in stores. It works best as a collaboration between retailers and manufacturers to enhance marketplace equity.

Marketplace equity (Exhibit 33.3) represents the incremental value a consumer derives from acquiring her repertoire of brands at a particular store. It is the outcome of brand equity and store equity and the extent to which they reinforce one other, and it serves the mutual interests of both the retailer and the manufacturer.

Manufacturers realize that increasingly brand choices are made in stores. What is stocked, where, at what price and with what incentives has great influence on the consumers’ buying behaviour and ultimately their choice of brand. They recognize the need to work with retailers to market their brands in the retailers’ stores.

Retailers recognize the need to rely on manufacturers’ resources and knowledge of products and consumers, for the development and execution of category strategies.

The foundation of category management stems from retailers’ and manufacturers’ need to collaborate to pursue their mutual interests. It is the retailer/supplier process of managing categories to achieve superior business results by enhancing marketplace equity.

It has become an industry practice for major retailers to appoint manufacturers as category captains for important categories, and count on their expertise and support to manage categories. While the category captaincy usually goes to one of the larger manufacturers, others participate as category advisors.

Manufacturers eagerly embrace category management as it affords the opportunity to collaborate with retailers to strengthen their categories and enhance the health of their brands. Being appointed as a category captain is also seen as a source of competitive advantage, allowing manufacturers to strengthen their relationships with retailers. Additionally, the close proximity to retail partners allows for quick access to useful trade information and resources. This facilitates faster more efficient decision-making and implementation of trade strategies.

Category Managers and Trade Marketers

Structure follows strategy. As the practise of category management permeated retail organizations, “buyers” transformed into “category managers”. Their roles, Exhibit 33.4, expanded to encompass operational and financial accountability for their categories. Besides purchasing, their responsibilities now encompass merchandising (assortment, and space allocation) and marketing (pricing, promotions, in-store marketing). This provides for a better co-ordinated approach to category management with category responsibility and authority placed under one team.

Meanwhile suppliers embraced the practice of trade marketing, a form of business-to-business marketing intended to strengthen trade relationships and improve business performance.

One of the outcomes of this transformation, though limited to more progressive retailers, was change in purchasing orientation  or the philosophy that guides purchasing-related decisions. Whereas traditionally buyers focussed on obtaining the lowest prices and maximizing power over manufacturers, progressive category managers now seek growth in sales and profitability through a more collaborative approach.