When working with clients and students, I often ask them, “Who owns the category-management process?”
About half respond, “Both the retailer and the supplier jointly own the process”, 30 per cent opt for the supplier and 20 per cent think it’s the retailer.
Of course, it is the retailer who owns the process.
Here is the basic category management process:
Step 1: Retailer strategy
Step 2: Developing the category plan
Step 3: Implementing the plan
Step 4: Reviewing category performance
Based on this process, it is easy to see why the retailer owns the process, because it is based on the foundations of the retailer’s overall strategy.
Retailers each have their individual approach to category management, based on internal strategies, guidelines and processes. Suppliers work with them to provide category expertise, data and resources, develop strategic category plans and improve the shopper experience.
In order to be successful in category management, both retailers and suppliers need to be “retailer-centric” in their approach, defining strategies for their business approach and what they are trying to accomplish.
A problem is that some retailers do not have well-articulated strategies. They may have gaps in their strategies and/or they do not effectively communicate their strategies. They may also choose to do all of their category-management work internally, as opposed to taking advantage of supplier resources, data and category expertise. This approach limits their ability to effectively manage categories, particularly as shopper and big data continue to grow in complexity, requiring increased analytics.
Many suppliers also continue to create brand-focused solutions that aim at the consumer, creating an issue in the category-management foundations.
There is a two-fold opportunity here: retailers can develop better-defined strategies, guidelines and processes they share both internally and with their supplier partners; suppliers can improve their understanding and focus on creating category solutions for each retailer and their shoppers.
So what is involved in a retailer’s strategy?
- Services offered: This part of your strategy should outline store hours/locations/customer service/in-store services and/or return policies.
- Target shopper:Identify and understand your loyal shopper groups, including their demographics by retail store cluster.
- Targeted competition:Define your key competition by banner and/or region. Determine this based on retailers whose target shoppers and trip missions are similar to your own.
- Product assortment strategies:Assortment has two considerations: the categories you carry (this may vary by store format/banner), and the range of items you offer.
- Product placement/merchandising/shelving strategies:Product placement needs to include overall store layouts, category adjacencies and category layouts.
- Pricing strategies:Pricing strategies should include targeted competition, guardrails, regional and store-cluster considerations, as well as mechanisms for tracking competitive pricing.
- Promotion strategies:This includes both internal marketing strategies (brand, retail, flyer programs, event marketing) and promotion strategies (flyers, in-store specials).
- Private-label/store-brand strategies: Store-brand/private-label strategies need to be defined for each store brand, including target shoppers, price tier and quality level.
Both retailers and suppliers should articulate your overall strategies across these areas – write them down or use a computer-generated document. Have others in your organisation do the same exercise, then review the results together – note differences in perspectives. There should be only one set of retailer strategies, and these should be well understood throughout the organisation.
Suppliers can do a similar exercise, focusing on a particular retailer. Note the gaps where you do not know or may be guessing the strategy. It is hard to provide a retailer with solutions to fit in their categories if they are not sharing their strategies with you.
Define and segment
Remember the shopper. They are the ones who go into retail stores looking for the categories and products they want to buy. You want to make this easy, and that starts with proper definitions – another part of your retail strategy.
Maximise your opportunity for success by grouping products together that meet a particular consumer need, are interchangeable and/or have similarities.
Once you have proper category definitions, segment your categories using consumer-decision trees (usually available from suppliers). Apply the most important segments to your item-level data so you can then view your business based on the segments most relevant to your shoppers.
For example, you could segment your dog-food category by splitting it into “treats” and “food”. Many retailers have their item-level data segmented only by category and manufacturer or brand.
Not all the same
Imagine if you treated each of the hundreds of categories in your stores exactly the same, including decisions on assortment, shelving, promotions and pricing. Equal treatment would entail the same number of resources and time. Sound like a good idea? Absolutely not.
Assign roles across categories to gain a broad look at your category mix. For example, assign your most important categories as a destination role. Once you determine a category’s relative importance, apply similar tactical strategies across categories with the same role.
To continue with our destination category example, you may offer a broad assortment, aggressive pricing on the top-selling items, and aggressive flyer activity for all categories assigned the destination role. Applying category roles is another important foundation of overall retailer strategy, creating an aligned approach in managing categories across your store.
Defining your store
Your retail strategy is what defines your store in the marketplace. Retailers with well-defined strategies, associated guidelines and processes arm their organisation with the ability to make category decisions that align to the overall shopper experience they are trying to achieve.
These strategies should also be shared with supplier partners, who can collaborate on developing category solutions that focus on shopper needs. They bring an important perspective.
There is little point in creating strategies if they are not properly articulated and communicated. Strategies need to include guidelines, principles and processes from which decisions and recommendations can be made at a category level.
Retailers need to look at their overarching strategies, guidelines and processes, and determine if they are enough. Do they give the organisation and supplier partners the structure to make the best decisions/recommendations at a category level?
Suppliers need to ensure they ask the right questions of their retail partners, and develop plans that consider the retailer and category perspective as opposed to a brand-only approach.
Sue Nicholls is a category-management executive, consultant and speaker, and president of the Category Management Knowledge Group.
This article was first published in the April edition of Inside FMCG. Subscribe now.
