Category Management is a retailing concept in which the range of products sold by a retailer is broken down into discrete groups of similar or related products; these groups are known as product categories (examples of Duty Free/Travel Retail categories might be: Beers, Wines & Spirits).
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Each category is run as a ‘mini business’ (Business Unit) in its own right, with its own set of turnover and/or profitability targets and strategies. Introduction of Category Management in a business tends to alter the relationship between retailer and supplier: instead of the traditional adversarial relationship, the relationship moves to one of collaboration, exchange of information and data and joint business building.
The focus of all supplier negotiations is the effect on turnover of the category as whole, not just the sales of individual products. Suppliers are expected, indeed in many cases, mandated to only suggest new product introductions, a new planogram or promotional activity if it is expected to have a beneficial effect on the turnover or profit of the total category and be beneficial to the shoppers of that category.
The concept originated in Grocery (Mass merchandising) retailing, but has expanded to other retail sectors such as DIY, Cash and Carry,Pharmacy/Chemist and Book retailing.
Definition of Category Management
Category Management lacks a single definition thus leading to some ambiguity even among industry professionals as to its exact function. Three comparative mainstream definitions are as follows:
Category Management is a process that involves managing product categories as business units and customising them [on a store by store basis] to satisfy customer needs. (Nielsen)
The strategic management of product groups through trade partnerships which aims to maximise sales and profit by satisfying consumer and shopper needs (Institute of Grocery Distribution) [a] .. marketing strategy in which a full line of products (instead of the individual products or brands) is managed as a strategic business unit (SBU). (Business Dictionary)
The Nielsen definition, published in 1992, was a little ahead of its time in that customising product offerings on a store by store basis is logistically difficult and is now not considered a necessary part of Category Management; it is a concept now referred to as micromarketing. Nevertheless, most grocery retailers will segment stores at least by size, and select product assortments accordingly. Walmart’s Store of the Community, implemented in North America is one of the few examples of where product offerings are tailored right down to the specific store.
Rationale for Category Management
One key reason for the introduction of Category Management was the retailers’ desire for suppliers to add value to their (i.e. the retailer’s) business rather than just the supplier’s own. For example, in a category containing brands A and B, the situation could arise such that every time brand A promoted its products, the sales of brand B would go down by the amount that brand A would increase, resulting in no net gain for the retailer. The introduction of Category Management imposed the condition that all actions undertaken, such new promotions, new products, re-vamped planogram, introduction of Point of Sale advertising etc. were beneficial to the retailer and the shopper in the store.
A second reason was the realisation that only a finite amount of profit could be milked from price negotiations and that there was more profit to be made in increasing the total level of sales.
A third reason was that the collaboration with the supplier meant that supplier’s expertise about the market could be drawn upon, and also that a considerable amount of workload in developing the category could be delegated to the supplier.
Definition of a Category
The Nielsen definition of a category, used as the basic definition across the industry is that the products should meet a similar consumer need, or that the products should be inter-related or substitutable. The Nielsen definition also includes a provision that products placed together in the same category should be logistically manageable in store (for example there may be issues in having room-temperature and chilled products together in the same category even though the initial two conditions are met). However, this definition does not explain how the process often works in practical retailing situationism, where demographic or marketing considerations take precedence.
The Category Management 8 Step Process
The industry standard model for Category Management is the 8-step process, or 8-step cycle developed by the Partnering Group. The eight steps are :
1. Define the Category (i.e. what products are included/excluded).
2. Define the role of the category within the retailer.
3. Assess the current performance.
4. Set objectives and targets for the category.
5. Devise an overall Strategy.
6. Devise specific tactics.
8. The eighth step is one of review which takes us back to step 1.
The 8-step process, whilst being very comprehensive and thorough has been criticized for being rather too unwieldy and time-consuming in today’s fast-moving sales environment; in one survey only 9% of supplier companies stated they used the full 8-step process. The current industry trend is for supplier companies to use the standard process as a basis to develop their own more streamlined processes, tailored to their own particular products Market Research company Nielsen has a similar process based on only 5 steps : Reviewing the Category, Targeting consumers, Planning merchandising, Implementing strategy, Evaluating results.
It is commonplace for one particular supplier into a category to be nominated by the retailer as a Category Captain. The Category Captain will be expected to have the closest and most regular contact with the retailer and will also be expected to invest time, effort, and often financial investment into the strategic development of the category within the retailer.
In return, the supplier will gain a more influential voice with the retailer. The Category Captain is often the supplier with the largest turnover in the category. Traditionally the job of Category Captain is given to a brand supplier, but in recent times the role has also gone to particularly switched-on Private label suppliers.In order to do the job effectively, the supplier may be granted access to a greater wealth of data-sharing, e.g. more access to an internal sales database.
Once a retailer decides what to buy from vendors and how much of it to allocate to specific stores, someone needs to decide where in the stores the products will sit. This is a very important step in retail since store layouts are crucial to the shopping experience. Products need to be easy to locate, near related products, and have the correct facings. Should this product be on the endcap? Should it be at eye level? Should it have 8 facings or 10? Space management is about maximizing every inch of the selling floor.
Traditionally, headquarters creates a limited number of planograms (PoG) that define where products go for a particular store format. Unfortunately, not all stores are the same. Not only do their formats vary, but there’s usually a degree of localization that makes them even more unique. So often the corporate PoG is treated as advice only and compliance is low. The answer is more collaboration between headquarters and the store. An increase of 10% in compliance can decrease stock-outs by 1%, and that leads to higher sales.
Retail Sales & Promotion
Retail marketing plans, sales promotion ideas, branding and advertising resources for retailers. Learn how to use loss leaders, media buys and sales events to the benefit of your retail stores. Select the right newspaper to advertise in, create an effective ad and understand newspaper rate cards.
Although the primary purpose of this section is to discuss merchandise management, advertising is so important to the concept that its inclusion, though brief, is necessary.
There are two major types of advertising:
1. Advertising to acquaint potential buyers with the special features of a product
With many industries, advertising of this type is done by the manufacturer of the product. Quite often, however, the retailer must do some of this advertising. When this occurs, it is often necessary to work with an advertising agency so they may help you write the copy (wording) such that the advertising will bring the best results. Such advertising concentrates almost solely on the single featured product.
2. Advertising the availability and price of nationally known merchandise
Much retail advertising is merely directed at letting potential customers know that the product is available and informing the customer of special prices or promotions which may encourage her/him to buy, at your store. This is perhaps best done through ‘Omnibus’ ads which feature many products, their prices, and brief slogans about their benefits. Consumers very often “shop” such ads and will come into your store to buy one or two of the items listed. While there, they buy other things on impulse.
Whatever your message may be, there are many ways to advertise – depending on how much information you wish to impart to prospective consumers, what kind of information (audio and/or visual), and how many consumers you wish to reach.
Retailers who cater to local clientele may use advertising methods such as:
- In-house flyers indicating products and bargains
- Signs both internal and external to the store
- Informative in-house displays of merchandise
- Direct mail advertising
- Local newspapers
- Distribution of flyers by hand or using the local newspaper deliveries (some papers have such arrangements)
Those retailers who wish to launch a large scale campaign may, of course, resort to advertising via radio, television, or widely circulated newspapers.
It is very important to remember that for any kind of advertising, single ads bring very sparse results. In order to make an advertising campaign successful, it is usually necessary to advertise repeatedly (five or six times during a one to two week period) to acquaint consumers with your service or product and, most important, with your store. It is also necessary to maintain a regular program of advertising throughout the year in order to continue bringing customers into the store.
Continual experimentation is necessary to determine which approaches are best. Although proper advertising may involve an initially high expense, if it succeeds both in drawing more clientele into your store and in increasing sales in both advertised and unadvertised products, the initial investment may more than pay for itself.
Once advertising has brought the consumer into your store, promotion and sales efforts must transfer the customer’s attention and interest into desire and action to buy.
Promoting merchandise may often be achieved by special arrangements with a manufacturer or a wholesaler. Often new merchandise will be offered at low introductory prices and the manufacturer or wholesaler will provide the retailer with special informative displays of the product as well as offer special rewards to the consumer.
Many times a manufacturer will not offer displays but you will want to promote certain merchandise nevertheless. Basic ways through which you may create your own in-store promotions are:
- window displays
- special in-store displays
- signs and posters
- personal selling efforts
Both in-house displays of merchandise and advertising displays should be:
- attention getting in coloration and layout
- informative in regard to the product
- either a direct or subtle sales pitch to convince the customer that he or she needs the product
- informative of price, especially if it is a ‘special price’
Both display advertising and in-house displays often do well to feature a number of related products, some of which may or may not be on sale.
Past studies in advertising have shown that a person’s eye is generally attracted to the center of a display, then off to the right of center and lastly reaches the edge of the display. It is therefore good practice to place a featured item, which may be on sale, at the center of the display and another product for which you most wish to generate sales, to the immediate right of the featured item. Other related products may be placed outward from around the center of the display.
When creating a display, it is important to tie-in merchandise lines with one another wherever possible. In this way, customers who are in the market for a specific product are also exposed to many related products and accessories which they will often buy. Such tie-in displays also create a more organized appearance of your store and will make products easier to find. For example, a person looking for toothpaste might be more likely to buy a toothbrush, dental floss, or mouthwash if those products are in close proximity to the toothpaste.
Tie-in displays also help to generate impulse buying. Quite often an advertised or ‘sale’ product will draw people into the store who will buy not only the advertised product but will also buy, on impulse, other unadvertised merchandise. Sales are often helpful to impulse buying since, when people feel they are getting a good bargain, they are often likely to reciprocate by purchasing other merchandise from you with money saved from the sale.
All promotions and attempts to interest customers in new lines, new products, or in special sales, will work better if they are supported with sales effort. For example, just before a product is rung up at the cash register, it is always a good idea to ask a customer whether he or she knows of a special sale, knows of a special product you are promoting, or could use something that goes well with the things the customer has already purchased.
If such reminders are given in a friendly way without being persistent, many customers will make additional inquiries and often additional purchases.
For your next in-store promotion, you might try using a tie-in display, with the featured item in the center of the display, surrounded by related products or accessories.
If possible, discuss your ideas with a person knowledgeable in advertising; pursue any additional ideas which may arise from such a discussion.