CATEGORY MANAGEMENTSession Objectives:lDefine Category Management (CM)lDescribe Category Management as a Business ProcesslDiscuss Critical Issues Related to Successfully Developing a Category Management System Category Management ProcessCategory Management IssuesDefine Category ManagementDefinitionBringing Better Value to the Consumer is thePrimary Focus of Category Management.“A Retailer-Supplier process of managing categories as Strategic Business Units, producing improved sales and profit results by focusing on satisfying consumer needs and delivering consumer value.”Source: ECR Best Practices ReportCategory Management has expanding into durable goods and services.Is Category Management just for the grocer?lDurable GoodslAuto Industry - GM Pontiac & FordlService IndustrylPhone ServicelFinancial Services/BanksDefinitionThe ECR SystemTimely, accurate, paperless information flowSupplierDistributorRetailStoreConsumerHouseholdSmooth, continual product flow matched to consumptionDefinitionEfficient PromotionEfficient Store AssortmentDefinitionCategory Management is at the at the core of ECR. CM provides a process & framework for collaboration.Efficient New Product DevelopmentEfficient ReplenishmentCATEGORYMANAGEMENTCategory Management as a Business Process is comprised of interrelated components both within and outside of the organization.What is Category Management?DefinitionInformationTechnologyStrategy&Business ProcessScorecardCollaborativeRelationshipsOrganizationCapabilitiesCoreEnablersEnablersCATEGORY MANAGEMENT: HOW IS IT DIFFERENT?lCategory/Brand/SKU Management under one Decision MakerlConsumer-Focused StrategieslData-based Decision MakinglProactive Business PlanninglCollaborative Work ProcesslManage Category As Business UnitlFocused on Category ROI - NOT Sales or Gross MarginDefinitionSKILLS NEEDED TO BUILD BUSINESS THROUGH CATEGORY MANAGEMENTlData analysis and technical masterylShopper and consumer understandinglStrategy developmentlFinancial and logistics expertiselInnovationlTotal Systems FocusDefinitionDefinitionWhy is it beneficial for Retailers and Manufacturers to Invest in Category Management?Helps Retailers -l Define customer needsl Determine strategic issuesl Enhance category and store profitsDefinitionWhy is it beneficial for Retailers and Manufacturers to Invest in Category Management?Helps Retailers -l Define customer needsl Determine strategic issuesl Enhance category and store profitsHelps Manufacturers -l Position themselves as category captains for retailersl Become an indispensable resource for the retailerl Enhance brand profitsRoad MapCategory Management as a Business ProcessCategory Management IssuesDefine Category ManagementProcessCategory Management as a Business Process.Category DefinitionCategory RoleCategory AssessmentCategory ScorecardCategory StrategiesCategory TacticsPlan ImplementationCategory ReviewSource: The Partnering GroupWhat is a Category?A distinct, manageable group of products/services that CONSUMERS perceive to be interrelated and/or substitutable in satisfying their need(s).ProcessCategory Definition - critical in determining the products that make up the category and in establishing the segmentation strategy.What is a Category?A distinct, manageable group of products/services that CONSUMERS perceive to be interrelated and/or substitutable in satisfying their need(s).ProcessCategory Definition - critical in determining the products that make up the category and in establishing the segmentation strategy.How does defining a category help?lProduces better retailer/manufacturer alignment with the consumerlCreates better manufacturer-retailer alignmentlGives new perspectives on how to view a product and/or categoryProcessJuices & drinksShelf stableRefrigeratedFrozenGlass/PlasticAsepticReady to ServeConcentrateCategory Sub-Category Segment Sub-Segment Defining a Category by Usage SegmentLemon Juice Segmentation:Source: Borden, Inc.ProcessCategory Role (or purpose) defines how the consumer views the category.Possible Category Roles:l Destinationl Conveniencel Routinel Seasonal/OccasionalProcessCategory AssessmentCategory Assessment involves conducting a complete analysis of the category by investigating its sub-categories, user-segments, brands, and SKUs. Such an analysis must be based on current consumer, distributor, supplier and market information.ProcessOne example might be identifying the gap between the current sales and the potential sales of a category.Source: Borden, Inc.ProcessKey Questions in Conducting a Category Assessmentl Who is my target customer?l How important is this category to that customer?l What are the category trends?volume, share, profits?l What are the key product segments?l What are the least and most important SKUs?ProcessKey Questions in Conducting a Category Assessment (continued)l How well is shelf space aligned to SKU movement?l How do consumers view brands?Brand names versus store brandsl When they make a purchase, How large is it?What else do they buy?l How does the categorys pricing compare to the rest of the store?ProcessKey Questions in Conducting a Category Assessment (continued)l How does the categorys pricing compare to the market?l What percentage of volume is sold on promotion?l What is the impact of featuring anddisplay?l What brands and sizes “define” and/or build the category?ProcessThe Category Scorecard measures and monitors the progress and performance of the category business plan. Targets or hurdle rates must be clearly stated.RevenueMarket ShareConsumption (Equiv. Volume)Out-of-stocksProfit Target Consumer ShareROIProcessCategory Strategies define the marketing, product supply, and in store service required to meet targets or hurdle rates.l Transaction Efficiency/Traffic Builderl Shopping/Informationl EntertainmentTypes of strategies:Source: Robert C. Blattberg, 1996ProcessCategory Tactics are the actions taken to implement the category strategies.Transaction efficiency/Traffic Builder Low price/convenience Category shop-abilitySource: Robert C. Blattberg, 1996ProcessCategory Tactics are the actions taken to implement the category strategies.Transaction efficiency/Traffic Builder Low price/convenience Category shop-ability Shopping/information Unique offerings/high service Easy access to product informationSource: Robert C. Blattberg, 1996ProcessCategory Tactics are the actions taken to implement the category strategies.Transaction efficiency/Traffic Builder Low price/convenience Category shop-ability Shopping/information Unique offerings/high service Easy access to product information Entertainment Stimulation/excitement Creative marketing/broad assortment Changing variety of products Source: Robert C. Blattberg, 1996ProcessCategory management plans are of little value unless they receive high quality implementation.Key Components of Plan Implementation:l Common Languagel Buy-in at ALL levelsl Clear Approval Processl Clear Assignment of Responsibilitiesl Implementation Schedulel Predetermined Indicators of SuccessProcessCategory Review is the ongoing measurement of the progress of the plan and modification where necessary.Stages of Category Review:l Opportunity and discovery processl Input, analysis & implementationl Measurement, adjustment & learningCATEGORY MANAGEMENTReviewing the CategoryTargeting ConsumersPlanning MerchandisingImplementing StrategyEvaluating ResultsProcessRoad MapCategory Management ProcessCategory Management IssuesCategory Management DefinitionCategory Management is a source of competitive advantage. If it is so easy to do and everyone is doing it, where is the advantage?Category Management is about strategic choices. The quality of the implementation and execution will determine the degree of competitive advantage gained.IssuesCategory Management is a dynamic, evolving practice.Is there one approach? no.lFundamental principles and processes.lImplementation depends upon the capabilities and current practices of the organizations.lTodays practices are tomorrows foundations for improvement.IssuesSuccessful Category Management helps to define a partnership.lAbility and commitment to develop the categorylA vision of the potential of the categorylAdequate information technology capability andsharing informationlMultifunctional team support capabilitieslBuy-in from top managementlClearly defines the role of the manufacturer with regard to Category ManagementlTrustIssuesHow to develop a successful Category Management relationship.Develop a common language for Category ManagementlTranslate the goals of the partnership into a usable and measurable plan the utilizes fact-based CM decisions and practices.lEducate everyone involved, buyers and suppliers, on the approach being taken for growing the category.lDevelop fact-based presentations representing the entire category.lDevelop a system of regular reports and monitoring for catching category trends and opportunities. IRI 1995IssuesCommon Obstacles to Successful Category Management.lMistaken belief that the organization is already doing Category Management.lLack of management commitment.lLack of timely and easy to use information for category assessment.lInadequate knowledge or misinformation about the consumer characteristics/demand for the category.lManagerial lack of training or abilities.lNon-standard product or pricing for the category.IssuesThe Manufacturer should keep their Category Management analysis honest.lManufacturer often does the initial analysis.lFinancial resourceslPotential benefitlInitial indicators may bode poorly for the manufacturers product - but must accept losses.lSolution: lGet Marketing and others involved.lTalk with your distributor and buy some time.lFix the product. If the analysis is right, something needs to change to address the shortcomings perceived by the consumers.IssuesCATEGORY MANAGEMENTQuestions?