Category Management

Asst Prof - George.K.J

Objectives
What is category management • What category management can do for your store, your buying and your customer • How to build a category, the rules • How to use the information to grow your business and increase customer satisfaction

The Merchandise Hierarchy

Store Department Category Sub Category Item Sku’s

What Is Required
Sales should be captured at the SKU level • Some items are replenished at the SKU level (basics) • Everything else is done at the category level (planning & analysis)

Category Management
Category management is the process by which we manage our business at the category level to deliver better product, pricing and service to our Customers • First and foremost category management is Customer focused

Category Definition
A category is a group or assortment of merchandise that the Customer finds interchangeable Would a Customer who was looking for a dress for work and not finding one, settle for a bathing suit? Category A distinct, manageable group of products/services that consumers perceive to be interrelated and/or substitutable in meeting a consumer’s needs. Category Management The process of managing categories as strategic business units, producing enhanced business results i.e. sales and profits with a focus on delivering consumer value.

Charter for Change

From Push Salesperson Buyer/Seller Cost Averaging Deals Sales Drivers

To Pull Business Team Account Management Cost to Serve Pay for Performance Profit Drivers

Charter for Change

From Data Protection Data Shelf Management Win/Lose

To Data Sharing Knowledge Assortment Management Win/Win

Elements
• Manage the category as a strategic business unit • Develop strategic category plans based on category goals, competitors and market conditions • Determine price, merchandising, promotion and product mix • Collaborate with suppliers

Process Activities
Category Definition Category Role Category Assessment Category Scorecard Category Strategies Category Tactics Plan Implementation

Category Definition
• What products are in a category? • How will categories be grouped?
Sub Segment Segment Sub Category Segment Category Segment Sub Category Segment Sub Segment Sub Segment Sub Segment Sub Segment Sub Segment Sub Segment Sub Segment

Category Role
• Destination To be the primary category provider and help define the retailer as the store of choice by delivering consistent, superior products. Determines where I go to shop. • Routine To be one of the preferred category providers by delivering consistent, competitive value products. Once at the destination, fills up the basket. • Occasional/Seasonal To be a major category provider, help reinforce the retailer as the store of choice by delivering frequent, competitive consumer value. Purchased as need arises. • Convenience To be a category provider and help reinforce the retailer as the store of choice by delivering good consumer value. Not worth a special trip elsewhere

DESTINATION Category
• Helps define retailer as “ Store of choice” Constitutes major part of customer planned purchase These product groups carry “Best Range at Best Prices” • Implications:• High Traffic, Exposure and Space allocation • Promoted at high frequency • Lead in share, sales, consumer satisfaction and service level. • Alliance with Trading partners

ROUTINE Category
Helps develop Retailer as “store of Choice” Customers buy these products as a matter of routine These product groups carry “Competitive Range at Best Prices” Implications:• Average location with high frequency • Promoted with average frequency • Requires preferred Suppliers • Primary role in delivering profit and cash flow.

CONVENIENCE Category
Customer buys these products from a nearby retailer rather than a distant retailer offering better value These product groups carry “Select Range at Good Prices” Implications:• Enhance margin and Profit generation • Available space location. • Low level of promotional activity

Seasonal / Occasional Category
Customer buy these products infrequently or seasonally. Seasonal category can become a “ Destination Category” during the season. These product groups carry . “Best Range at Best Prices” Implications:• Timely variety of major Brands and Sku’s. • secondary role in providing Profit, cash flow and ROI. • High traffic and average space allocation. • Seasonal / timely promotional activities

SUB GROUP ROLES
• TRAFFIC BUILDER • • • PROFIT GENERATOR IMPULSE IMAGE CREATOR

TRAFFIC BUILDER • High share in the product group • • • Frequently Purchased High % of sales Higher Turns

PROFIT GENERATOR • Higher gross margins

IMPULSE • Customers are not brand conscious • Unplanned purchase • Visibility / Promotion driven • Stock turns are high • Need to be promoted heavily IMAGE CREATOR • Specialty category • Caters to a niche segment • Highly promoted • Gives higher margins

Develop Tactics & the Business Plan-How do Category Strategies Translate into Tactics and the Business Plan?
Role (Objective) Possible Goals
Above “fair share” of Market Below “Average” Handling & Warehouse Cost Above Projected Accounted growth Average ROi Fair Share” of Market Fair Share” of Market Growth Below “Average” Handling & warehouse costs Higher than average ROi Above “fair share" of market at peak consumption periods Higher than “Average” service level during peak periods Below average operating Expense during non peak periods • Contribute above “fair share” of profit • Contribute above “fair share” of ROi

Possible Strategies
Attract new customers Increase # of trips Reduce handling costs Reduce holding costs Increase % of trips with purchase Increase Rs/Purchase Reduce requisition costs Reduce handling costs
Attract new shoppers Increase % trips with Category purchase Reduce holding costs

Possible Tactics
Merchandising Feature & Display 52 weeks a year Pricing: Top 10 SKUs below lowest competitor everyday Shelving: Prominent aisle location Selection: Maximum Variety vs. Market Merchandising: Feature & Display 26 weeks a year Pricing: Top 20 SKUs equal to lowest competitors everyday Shelving: Section large enough for zero OOS Selection: Equal Variety versus Market Merchandising: Prominent Feature & display for key weeks Pricing: Feature pricing lowest, shelf slightly higher Shelving: Minimum needed space Selection: Large Variety for impulse, reduced balanced of year

Destination

Routine

Seasonal/ Occasional

Convenience

Increase $/Purchase Reduce Administrative costs Reduce Holding Costs

Merchandising: Available Space Pricing: Non-inflammatory Shelving: Minimum space required Selection: Most popular SKUs only

ADVANTAGES • • • • • Helps to decide on the range which we carry The discounting of a category Promotions of the category Decide the no. of players in a sub group Placement of category in the store

Rationalization Options
Maintain : No change to current assortment Increase : Increase the number of SKU’s in the category, sub-category and segment Decrease : The no. of sku’s in the category, subcategory and segment. Swap/Exchange : Alter the mix of SKUs by replacing existing SKUs with new SKUs Tailor/clustering : Tailor the assortment by store or clusters of stores Private label : Develop, abandon or expand on private label representation within the category, sub-category and segment.

Category Strategy Traffic Building High Share Transaction Building

Category Strategy Characteristics Frequently Purchased, High % of Sales Higher Ring-up, Impulse Purchasing

Profit Contribution Cash Generating Excitement Creating Turf Defending

Higher Gross Margin, Higher Turns Higher Turns, Frequently Purchased Impulse, Lifestyle-Oriented, Seasonal Used by Retailers to Draw Traditional Customer Base Frequently Purchased, Highly Promoted Impulse, Unique Items, Seasonal

Image Creating

Rules
Customers define category structure • Use Department, Category, (Subcategory) • No more than 10 departments per store • No more than 10 categories per department • No more than 10 subcategories per category

Benefits of Category Management
“Customers vote with their wallets”, we can summarize the votes in a logical, easy to understand way • Tracking our business by department does not tell us enough • Tracking our business by SKU does not tell us much beyond our top best sellers and our worst sellers, it ignores the majority of our business

Benefits of Category Management
• Proper categories make store placement easier and shopping easier for Customers • We can also promote, discount, clear by category • Category expansion/extension becomes easier to justify more likely to succeed

Category management requires
Proper identification of categories (names) • Display at the category level • Planning at the category level • Open to Buy at the category level • Reporting at the category level • Price analysis at the category level

How to create categories
Example – Grocery Store • Department = Health & Beauty • Categories – Cosmetics / Treatment – Cosmetics / Color / Fragrance – Vitamins – Oral care – Hair care – OTC – First Aid

Another
Example – Department Store • Department = Men’s Clothing • Categories – Dress pants – Casual Pants – Shorts – Dress Shirts – Casual Shirts – Accessories – Underwear – Outerwear

Display at the category level
If the definition of category is a grouping or assortment of merchandise that the customer finds interchangeable, we must display all merchandise in a category together • Some merchandise may require multiple display areas (i.e. batteries, candy, impulse items)

Planning at the category level
Merchandise plans must be prepared at the category level • Sales, Inventory, Markdowns are the key numbers for planning and yield an Open to Buy at the Category level