Definition

Category A distinct, manageable group of products/services that consumers perceive to be interrelated and/or substitutable in meeting a consumers needs. Category Management The supplier/retailer process of managing categories as strategic business units, producing enhanced business results by focusing on delivering consumer value.

It offers.
From Push Salesperson Buyer/Seller Cost Averaging Deals Sales Drivers To Pull Business Team Account Management Cost to Serve Pay for Performance Profit Drivers

It offers..
From Data Protection Data Shelf Management Win/Lose Fast To Data Sharing Knowledge Assortment Management Win/Win Fastest

Reason for emergence of Category Management

Consumer change Economic efficiency consideration Competitive pressures Information technology advances

Component of Category Management

Elements of Category Management

Category management aims to provide the shopper and consumer with what they want, where they want it, and when they want it. Products are grouped together into categories to reflect customers needs based on how the product is used, consumed. .

Evolution of Category Management

Todays category management has its roots with the landmark Efficient Consumer Response1 (ECR) industry initiatives of the 1990s developed by the Grocery Manufacturers of America (GMA) industry association.

Consumer lifestyles have changed dramatically since the days of corner grocery stores and corner drugstores. With the shift of power, consumers have become more demanding and want a greater assortment of categories and products from which to choose.

 Despite the good intentions of consultants, scholars and industry representatives, ECR guidelines have proven to be complicated and restrictive. The GMA however, be credited with developing a category management methodology that has helped to highlight the importance of consumers and their behaviors, the categories they purchase and the demand/supply chain required to support them.

Process Activities
Category Definition Category Role Category Review
Destination Routine Occasional Convenience

Category Assessment
Category Scorecard Category Strategies

Category Tactics
Plan Implementation

Assortment Promotion Pricing Shelving

Step 1 Category Drilldown and Definition

By Brand Branded National Brand Local Brand Private Label Economy/Value Premium By Usage Fresh Canned Juice concentrates

 What products are in a category? How will categories be grouped?

Segment Sub-Category Segment
Category
Sub-Segment Sub-Segment Sub-Segment Sub-Segment Sub-Segment Sub-Segment Sub-Segment

Segment Sub-Category Segment

Source: ECR Category Management

Sub-Segment

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Step 2: Defining the category Role

It determines the priority and importance of various categories in the overall business. This essentially serves as the basis for resource allocation. Typically, the assignment of the role is done after taking into account the consumer, Distributor, Supplier and marketplace If a category is composed largely of premium brands then most of the brands in the category are, or should be, quite profitable and vice versa. With in a category products will be assigned sub category roles.

 The Category Management Best Practices Report suggests a set of four consumer based category roles. These are:

1. Destination Category: Superior value to target customer

& lead in areas of turnover, market share, consumer satisfaction, service level & operating expense management. For e.g. Coffee, Pasta, Paper, Bread etc. For most of the retailers, 5-7% of their category are assigned a destination role.

Preferred/ Routine Category:

Here the retailer decides that he wishes to be the preferred provider of these products to the target consumer. Typically this category comprises of products that the consumer purchase as a matter of routine & would include things such as toothpaste, toilet soap, juice, milk, detergent powder etc. The retailer has to ensure that he delivers consistent, competitive value to the target customer. 55-60% of a retailers category have a preferred role.

Occasional or Seasonal Category:

Seasonal categories are those that are purchased infrequently or follow cyclic pattern. For e.g. Umbrella sold by a particular retailer during the rainy season would be a seasonal category. 15-20% of categories are managed with this role.

Convenience Category:
Convenience category are those that the consumer finds convenient to pick up at a neighbourhood retailer. For e.g. home cleaning products, car products etc. This category is important for profit generation and margin enhancement. 15-20% are assigned this role.

Step 3: Category assessment

Who is the Target customer ? What Inventory is required to sell profitably How Much Shelf Space is allotted If we use the same space for something else what margins can be generated Is there an impact on sale of other categories How much stock is sold on promotion Shrinkage and pilferage constitute what percentage of margin Is there any Non Sales Revenue being Generated Is there a Potential for growth

Identifying Gap between current and potential sales

Step 4:Category Performance Measures

The development of category performance measures involves setting measurable targets in terms of sales, margins and gross margin return on investment (GMROI). It need to be established for measuring category performance. It includes:
Sales Profits Market Share Inventory Turnover Changes in assortments Consumer transactions

Step 5: Category Strategy

Retailer Low Margin High Volume High Margin Low Volume High Inventory High Margin Low Inventory High Turn strategy Customer Market Share/Price Positioning Fashion Driver Bottom line Contribution Top Line Contribution

Step 6:Category Tactics

It works towards the determination of the optimal category pricing, promotion, assortment and shelf management, which are necessary to achieve the agreed-on-role, scorecard and strategies. Tactics generated need to be done so after taking into account the spread of the consumers needs, and the minimum coverage levels that are needed to meet the consumers needs.

Product based Tactics

Pack of 3 briefs @ Rs 99 with 10 % margin Rs. 20000 wedding collection Sherwani Exclusive range of Leather footwear Fast Moving Consumer goods Tooth paste, Diapers

Operational Tactics
High stacks in the action alley to give feel of plenty Exclusive Boutique look with pictures of Models Wide range of Leather Shoes in all possible color, size and brand options

Step 7: Key Elements of Category Plan implementation

Everyone has to be on the same page Designation of Authority Systems to be in place Approvals have to be smooth as per well defined processes Clear assignment of responsibility Mission critical Timelines Dip sticks for course correction Pre determined measures of success

Step 8: Category Review

The final step in the process is the review of the progress and the actual achievement of the targets set for the category. Review aids the taking of the decisions at the right point of time. Key areas that need to be looked into while looking at the category review process is an understanding of how often the category business plan needs to be evaluated. This largely depends on the category and its role.

Category Captains
The best and biggest suppliers having a pan market presence are appointed by several retailers as Category Captains 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. The Category Captain is often - but not always! - the supplier with the largest turnover in the category.

 Characteristic of CC: 1. Ability to think strategically 2. Ability to be unbiased 3. Ability to access relevant information

Steps

Preparation

Coordination

Execution

Create team Develop plan Collect information Develop tools Package program

Target customers Present plan Establish goals Organize team Develop scorecard Establish schedule

Share information Perform analysis Develop plan Implement plan Monitor results Modify plan

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Infrastructure Required For Category Management

Key Focus Areas

Efficient Product Introduction:

It focuses on efficient and effective launches of new products based on the needs of consumers. Manufacturers primarily concentrate on reducing the number of failures in new-product introductions and associated costs. Only value-added products are placed on the shelf based on consumer demand.

Efficient Product Promotion:

It deals with the efficient and effective execution of promotion strategies, which can have a tremendous impact on the supply chain. Product promotion takes the form of trade promotion,
consumer promotion and consumer advertising. Consumer advertising radio, TV, newspaper, magazine. Consumer promotion special offers, gifts and coupons. Trade promotion between the manufacturer and retailer involving deal, offers, special discounts, etc.

Efficient Store Assortment:

It targets the development of various groupings of products and services that are profitable and satisfy consumer needs. The goal is to utilize store shelf space more efficiently. POS data is critical to efficient store assortment; real-time consumer preferences are gathered at the cash register and fed back to the category and assortment analysis in order to select and optimally place products on store shelves.

The Consumer
Category management begins with the consumer. Companies must determine: Who the consumer is age, economic status, residence, etc. What the consumer buys products, brands, colors, flavors, etc. What kind of shopping trip is typical in/out, convenience, destination trip, etc. How the consumer buys by promotion, price, product, etc. How often the consumer buys daily, weekly or monthly

Role of Technology in Category Management

In the early days, The software applications for category management required too much number crunching. Instead of talking to customers, salespeople were sitting behind a personal computer pulling data, putting it on Excel sheets, and then creating PowerPoint slides for a presentation. The process was tedious and time consuming.

Now a Days Companies were forced to streamline their approach to data analysis and develop appropriate applications for the job. Proprietary systems emerged that simplified and quickened the process for many practitioners. Training focused on working with user-friendly template based customized software as opposed to a process of pulling data and learning to manipulate it.

Benefits Of Category Management

Productivity: Establishing category management with the optimal tools, processes and information systems will help assemble category plans in a much shorter time frame. Resiliency: Category managers possess the tools, processes and information to accurately develop and manage categories as well as model changes for ongoing improvement. Precision: Data integration, collection and warehousing techniques are established to provide reliable, precise, real-time data to category managers, who can then model real situations with real data.

 Responsibility: Automating the scorecard with application tools and data integration with ERP, store and manufacturing systems supports the critical requirements of a scorecard. Revenue and Performance: Revenue and performance are the critical benefits that senior management will measure and by which the category management process will be considered a success or failure. Cost reductions , Increased sales, Improved margin, Improved profits, Increased market share, Improved consumer satisfaction, Improved in-stock conditions, Improved return on assets.

Drawbacks of CM
Requires a considerable amount of reorganization within the retailer and has met with a number of inhibiting factors. Lack of variety offered to customers. Concentrating on efficiency in logistics and merchandising may result highly efficient retailing but there is risk that the consumer experience is being given lower priority. Threat to smaller suppliers

Conclusion
Category management is a major investment in terms of time and assets. It is also a personal investment on the part of everyone involved to commit to the process and implement the required change management. Category management does more than contribute to the success of a retail operation. It is an essential component. In fact, it is difficult to imagine a retailer winning in the marketplace without relying on the direction that this valuable process provides.

 Expertise in category management is certainly a competitive advantage. It empowers retailers to make better business decisions that help them achieve financial objectives. Well-managed categories will enable retailers to keep their present shoppers and attract new ones.