CHAPTER 3

CATEGORY MANAGEMENT
LEARNING OBJECTIVES
 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” (IGD, 1999)

 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)
ASPECTS OF CATEGORY
MANAGEMENT

A philosophy
 A process
 An organisational concept
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, some become category champions
Table 3.1 The Category Management Process

Category Definition Define the Category. Determine the products that make up the category from a
consumer’s perspective. Consider the role of sub-categories
 or individual SKU’s taken in the category.

Establish the strategic role of the Develop a strategic plan for the category, considering long-
category within the total product term trends.
assortment of the retailer.

Category Planning Establish the measures upon Determine the way in which the performance of a category
which category performance will will be evaluated. Consider various costing and profitability
be assessed. approaches and include both quantitative and qualitative
 assessments.

Formulate a strategy for the Develop a marketing and supply development plan to
category. achieve both short term and long-term category objectives.

Establish the category marketing Determine the various tactics to be used within the
mix. marketing and supply plan, e.g. space allocation,
 promotions.

Category Establish category management Assign responsibilities for category management

Management roles. implementation within both retailer and supply partner
Implementation  organisations.

Category Review Measure, monitor and modify the category.

Adapted from Fernie and Sparks, Logistics and Retail Management (1998:33, Kogan Page Publishers
and Basury et al, 2001
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. fruit
yoghurts)
 Sometimes a category is defined by products
being complementary (e.g. ‘exotic foods’)
THE ROLE OF THE SKU
WITHIN THE CATEGORY
 When defining the category individual roles of
SKUs (stock keeping units, or product items)
are acknowledged:
 trafficbuilders
 sales and profit generators
 excitement creators
 reinforcement of retail brand

 Products without a clear role should be

eliminated from category
THE STRATEGIC ROLE OF THE CATEGORY WITHIN A RETAILER’S
PRODUCT ASSORTMENT (TABLE 3.2)

RETAIL BRAND REINFORCER New Categories

High fashion and symbolic categories
High technology product categories
Includes strong (retailer or manufacturer) brands
Create excitement and theatre in store
CASH-FLOW CONTRIBUTOR Established categories
Non-symbolic categories
Consistent value provision
PROFIT GENERATOR Growing categories
Fashion categories
Symbolic categories
High profit margins
SERVICE PROVIDER Stagnant or declining categories
Staple product categories
Well established market leading brands
Competitive with other category providers - low
profit margins
DESTINATION Growing or well established category
Contains leading brands
Deep and wide assortment
Considered the best retail offer by target customer
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
IMPLICATION OF THE CATEGORY LIFE
CYCLE FOR CATEGORY MANAGEMENT

 Insert Figure 3.1

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, e.g. space allocation, display and in-
store promotions
 A team organisation that spans across supplier’s and
retailer’s boundaries (see Fig. 3.3)
THE RETAILER-SUPPLIER
INTERFACE
 Insert Figure 3.3 and acknowledgement
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.g. ECR)
 “aseamless interface from customer purchase to
manufacturing schedules” (Lowson et al, 1999: 40)
 ECR aims to maximise customer satisfaction while
minimising supply costs
THE PRINCIPLES OF ECR
 Insert Figure 3.4
THE SCOPE OF ECR
 Insert Figure 3.5
INFORMATION FLOW AND
DATA TECHNOLOGY
 Development of ECR
Insert fig 3.6
has been dependent
on enabling
technologies
 Data management and
sharing across parties
in supply chain is a
requirement for ECR
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