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Introduce category management as an evolving consumer-led approach to retail product management Become familiar with associated product management systems, such as ECR and QR Introduce the concept of a category and the category life cycle Consider the implications of CM for retail buying organisation structures and supply partners
Outline the limitations of CM
CATEGORY MANAGEMENT DEFINITION “the strategic management of product groups through trade partnerships. which aims to maximise sales and profits by satisfying consumer needs” KEY PHRASES a strategically managed product group (defined by shopping behaviour) relies on trade (supply) partnerships aims to maximise sales and profits (of group rather than item) .
The focus of all supplier negotiations is the effect on turnover of the category as whole. with exchange of information. sharing of data and joint business building. and has since expanded to other retail sectors . not just the sales of individual products.Category management in a retail context 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. the relationship moves to one of collaboration. The concept originated in grocery (mass merchandising) retailing. instead of the traditional adversarial relationship.
will also be expected to invest time. The category captain will be expected to have the closest and most regular contact with the retailer. . and often financial investment into the strategic development of the category within the retailer. The category captain is often the supplier with the largest turnover in the category.Category captains It is commonplace for one particular supplier into a category to be nominated by the retailer as a category captain. effort.
new products. the retailer's) business rather than just the supplier's own. the situation could arise such that every time brand A promoted its products. The introduction of category management imposed the condition that all actions undertaken. introduction of point of sale advertising etc. in a category containing brands A and B. the sales of brand B would go down by the amount that brand A would increase. such as new promotions. re-vamped planogram.e. resulting in no net gain for the retailer. were beneficial to the retailer and the shopper in the 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. For example. .
A second reason was the realization 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. . and also that a considerable amount of workload in developing the category could be delegated to the supplier. A third reason was that the collaboration with the supplier meant that supplier's expertise about the market could be drawn upon.Rationale for category management…..
ASPECTS OF CATEGORY MANAGEMENT A philosophy A process An organisational concept .
some become category champions .CATEGORY MANAGEMENT AS A PHILOSOPHY Products are considered as a way to satisfy consumer demand Demand-pull rather than product-push (forecasting) Product features and procurement (buying) becomes part of. but not focus of product management process Suppliers are integrated in category management process.
Consider various costing and profitability approaches and include both quantitative and qualitative assessments. Kogan Page Publishers and Basury et al. 2001 . considering longterm trends.g. Determine the various tactics to be used within the marketing and supply plan. e. Formulate a strategy for the category. Assign responsibilities for category management implementation within both retailer and supply partner organisations. Logistics and Retail Management (1998:33.Table 3. Establish category management roles. monitor and modify the category. Establish the strategic role of the category within the total product assortment of the retailer. Consider the role of sub-categories or individual SKU’s taken in the category. Develop a marketing and supply development plan to achieve both short term and long-term category objectives. Establish the category marketing mix. Category Management Implementation Adapted from Fernie and Sparks. Establish the measures upon which category performance will be assessed. Develop a strategic plan for the category. space allocation. Measure.1 The Category Management Process Category Definition Define the Category. Category Review Determine the products that make up the category from a consumer’s perspective. Category Planning Determine the way in which the performance of a category will be evaluated. promotions.
DEFINING A CATEGORY A category should be established by the way consumers buy the product Usually products in category are reasonable substitutes for one another (e.g. Printers and ink cartridges) . compact disks and cassette tapes. ) Sometimes a category is defined by products being complementary (e.g.
or product items) are acknowledged: traffic builders sales and profit generators excitement creators reinforcement of retail brand Products without a clear role should be eliminated from category .THE ROLE OF THE SKU WITHIN THE CATEGORY When defining the category individual roles of SKUs (stock keeping units.
low profit margins Growing or well established category Contains leading brands Deep and wide assortment Considered the best retail offer by target customer .THE STRATEGIC ROLE OF THE CATEGORY WITHIN A RETAILER’S PRODUCT ASSORTMENT RETAIL BRAND REINFORCER CASH-FLOW CONTRIBUTOR PROFIT GENERATOR SERVICE PROVIDER DESTINATION New Categories High fashion and symbolic categories High technology product categories Includes strong (retailer or manufacturer) brands Create excitement and theatre in store Established categories Non-symbolic categories Consistent value provision Growing categories Fashion categories Symbolic categories High profit margins Stagnant or declining categories Staple product categories Well established market leading brands Competitive with other category providers .
PRODUCT CATEGORY LIFE CYCLE The category life cycle is more useful than the (individual product life cycle) to the retail product manager The different phases of the category life cycle have implications for category management .
CATEGORY MANAGEMENT AS AN ORGANISATIONAL CONCEPT Category management brings a stronger marketing orientation to product management More cross functional role: tending to reduce the role of „buying‟ and augmenting the role of „merchandising‟ More involvement with store level product management.g. space allocation. e. display and in-store promotions A team organisation that spans across supplier‟s and retailer‟s boundaries . .
CATEGORY MANGEMENT AND ECR (Efficient Consumer Response) Truly responsive product management requires retailer‟s supply chain (as well as retailer‟s buying organisation) to be responsive to consumer demand CM is usually part of responsive supply chain management (e. ECR) “a seamless interface from customer purchase to manufacturing schedules” ECR aims to maximise customer satisfaction while minimising supply costs .g.
implementing strategy. .Market research company Nielsen has a similar process based on only 5 steps : reviewing the category. planning merchandising. evaluating results. targeting consumers.
quantity and purchasing authorization skilled procurement personnel are actively involved in purchasing processes resources can be committed cost effectively to market watching and analysis.Benefits of category management better value for money through aggregation of demand standardizing requirements in terms of specification. .
CATEGORY MANAGEMENT LIMITATIONS Category management relies on theory and jargon. many well-run retailers have adopted the principles of CM and ECR without the help of consultants Change in organisation not always possible due to skills shortage Retailers often have difficulty accepting suppliers as partners „Efficient‟ ranges have danger of becoming boring and looking like those of competition Smaller suppliers can be squeezed out Smaller retailers may not have resources to adopt CM .
Governmental concerns about category management Many governments have viewed increased collaboration between suppliers and retailers as a potential source of antitrust breaches. They have also acted on milk price-fixing in Britain . For example the UK Competition Commission has raised their issues on market distortion in principle. such as price fixing.
medium or low quality. . At the same time.e. Each product is i. defined as high. In the table below you can see that each cell in the category has a certain number of products. edutainment.Example of category management A category could be 29 different software products for children. they are defined as games. or graphics.
retail can have products that customers expect to be there but not necessarily buy when they see the alternatives. To complete a category. .Example continued… Retail focus on the categories and not necessarily on each product. Retail also regularly needs new products to make the shopping experience ever exciting. The mix of products is used by retail to optimize their profit.
Expanding a cell (on behalf of another cell) 3. Establishing a new type of product (and category). Focus on one of the following 3 strategies: 1.Where does my product fit in? Once you know which category (and cell within the category) your product belongs. you can start developing your strategy. Pushing out competing product 2. .
and understanding fashion. logical. Pushing out competing product Evaluate the strengths and weaknesses of your product compared to a specific competing product. You must be able to communicate the strengths of your product compared to competing products in an easy.. .1. Do not use technical language –unless that is the language for the specific chain/target customer group.
you can argue for expanding a whole category. Your product might be useful as a way to complete a category. . Expanding a category If you find that your product cannot beat a competing product.2.
. Selling-up strategy is an old trick where retail attracts customers with low prices that often mean lower profits. New categories are first established when the sales of a product type exceed a certain sales and on the same time do not really fit into the existing category they were originally placed in. It is the task of the headquarters to feed the salespeople with the selling-up arguments/information so they know which products they shall sell to customers and which sales arguments to use. Establishing a new type of product (and category) All new products are forced into an existing category.3.
. 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.conclusion Category management helps to increase the sales of the product whose sales has been a cause for concern. It gives better value for money through aggregation of demand.