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What is Category Management ?
Perhaps one of the reasons Category Management ("Cat Man") often fails to get itself properly understood is its
lack of a single coherent definition. And those definitions that do exist tend to be
either out-of-date, or so heavily buzzword-laden or incoherent that they leave the reader little the wiser!
We'll try and clear up the confusion a bit on this page.
We'll try and clear up the confusion a bit on this page.
Category Management can be summed up (to be most easily understood) as :
1. A retailing process in which first of all, all likeminded products in a retailer's total portfolio are lumped together into product groups called "Categories". So examples of Categories would be, for instance : toothpastes, washing-up liquids, baked beans, dog foods, cosmetics, shoes ...
2. Each Category is then run like a "mini-business" in its own right, managed by both the retailer and suppliers, with its own Category turnover and/or profitability targets.
3. The relationship between retailer and supplier moves to a more collaborative nature with more open-ness and sharing of information. Importantly, suppliers are expected to propose actions (eg new products, or promotions) only if they add to the total category sales and the satisfaction of the shopper.
Quick links to sections on this page:
Why Category Management ?
Why do Category Management ?
A Brief History of Category Management
What is a Category ?
What is a Category Captain ?
Wal*Mart/Asda Retail Link
The 8 Step Process (and do I need it?)
What kind of things are involved
What do I need to do Category Management ?
The Future of Category Management
Why Category Management ?
Why indeed ? Well, here are three reasons why Category Management became popular ..
1. A realisation amongst retailers that their shelves were often the battleground between competing brands and products with little or no gain for themselves out of it. For example, brand A may run a promotion and sell an extra £1000 per week. This in turn may mean that consumers switch away from brand B and hence brand B sells £1000 per week less. Although brand A has gained from the promotion, the retailer has seen no effect on his total level of sales; shoppers have merely switched from one brand to another. That's a lot of work for the retailer to set up the promotion with no benefit to himself. Likewise, a retailer with several suppliers may find that the suppliers are all bringing along products which are all more or less the same and the retailer's sales are just being diluted among all the different variants of essentially the same thing.
2. A further realisation was that there was a law of diminishing returns in using precious time and energy to just fight about price negotiations at the expense of everything else, and that a better way to grow profitability was to increase the size of category through mutual effort and investment.
3. Resource-hungry retail buyers found that they could leverage an advantage from getting their suppliers
to carry out data-analysis and research. In addition, they could capitalise on the experience and expertise
of their suppliers which they would never have had the time and/or resource to acquire themselves. In return,
many suppliers were glad to carry this out as it gave them influence and an opportunity to demonstrate their
commercial expertise.
Two key things were needed in order for Category Management to evolve which would have made it difficult,
if not impossible before then :
(1) The growing dominance of certain retailers such as WalMart in the USA, likewise the "big four" grocery
retailers in the UK. Before then, retailers were focussed more on growth through keen price negotiating and
building and acquisition of stores. Likewise, suppliers would not have seen a return on investment into large time and
budget resources into lots and lots of small retailers; with fewer but larger clients, the concept was workable, not to say attractive.
(2) The explosion in information technology which meant that sales data (eg that collected from barcode-scanning tills)
could be more efficiently collected and analysed for trends
and information. The increasing power of desktop PC's and the evolution of the
internet has served to further accelerate this trend.
During the mid 1990's, some retailers and suppliers got off to a bit of a false start after Category Management
was confused as a euphemism for "rationalising the assortment and clearing out duplicated products". It was mistakenly seen
as a one-off "spring-clean" of the fixture, and hence, once done was perceived as "job finished."
However, a walk round your local grocery store will soon reveal that such a definition does not tell the whole story.
For example, I could choose to shave either with a manual toothbrush or with an electric toothbrush, yet electric
toothbrushes are often merchandised somewhere separate in the store, maybe as part of an "electrical grooming" category which could
also include the very clearly not-substitutable products of hair driers and electric razors.
In addition, whether dusting the house or cleaning the windows, a yellow duster and a
window-leather are not normally considered as mutually substitutable; yet they are generally merchandised side by side in the "Cloths"
category in the store.
The Nielsen definition of Category Management tries to address this by adding the provisos that the products can be "related" not just directly substitutable, and also that the category should be composed in a way which is logistically practical (for example, having ambient products and chilled products together in the same category may cause logistical headaches in practice, even if the products are related or substitutable.)
Sometimes demographic considerations prevail. A chrome toilet brush maybe considered part of the "luxury homewares"
category and therefore merchandised - and maybe even under the responsibility of a completely different buyer - away
from its cheap white plastic counterparts.
The overall scope of a category will also differ from retailer to retailer, so that, for example, whilst one retailer
would consider "baked beans" to be a category in its own right, another may consider it as merely a sub-segment of
a broader category of "canned vegetables". Going the other way, other categories maybe broken down into more-manageable
sub-categories.
Understanding your category definition is key for success. Within Cat:Man+ training courses, the logic
(and sometimes the 'non-logic'!) of creating categories is understood. You will also understand how to map
categories into consumer category maps in order to understand how to plan and to strategically and tactically drive categories.
The Category Captain is not always the supplier with the largest turnover, although that is quite common. However, sometimes a
#2 or #3 player who can demonstrate particularly strong expertise in Category Management is given the job instead. And also,
whilst the job has traditionally been given to branded suppliers, it is now commonplace to have switched-on Private Label suppliers
taking the Category Captaincy job.
Despite the improved status, the Category Captain should not abuse, or be made to abuse his status by blatently
uncompetitive practices such as price fixing or blocking a competitor.
If you are Category Captain - good news - you should have a strong influential status with your customer. Be aware
however, that this comes at a price, you will be expected to work hard to maintain it and you should demonstrate
new, proactive ideas for developing the category. Take a look at some CatMan+ software; there could be
something there of great use. Also, ensure that you are being adequately rewarded for your
efforts; sometimes category captains complain of feeling "used" if they are not getting the return on what can be
quite a substantial investment. In our training courses, we investigate ways to ensure you are rewarded for your efforts.
If you are not yet Category Captain, don't worry ! With the right attitude and some knowledge, you can still
boost your status by being able to talk knowledgeable with your buyer and thereby improve your chances of getting
listings and promotions. Think about one of our training courses to improve your organisation's abilities.
Since 2001, Walmart has withdrawn its co-operation from other market-data suppliers such as Nielsen and IRI. This has created somewhat of a headache for people wishing to look at total category overviews since it means some (often arduous) amalgamation and reconciliation of data between Retail Link and Nielsen/IRI.
The eight steps are basically (1) Define the Category (2) Assess the role of the category within the retailer
(3) Asses the performance of the category (4) Set objectives and targets (the so-called "Category Scorecard")
(5) Devise overall category strategies (6) Set category tactics (based around the "4 P's") and (7) Implement them.
The Nielsen process (slightly older) is a 5-step process, the steps being (1) reviewing the category (2) targetting consumers,
(3) planning merchandising (4) Implementing the strategy and (5) Evaluating the results.
The traditional 8 step Category Management process has been criticised for being too bulky, unwieldy and slow for
the fast-moving pace of many categories, with many detailed time-intensive Category Management studies being already out-of-date
by the time they are presented in full to the retailer. See "the future of Category Management".
A key component of good Category Management is data analysis. Such data may be from specialist data providers such as A C Nielsen, may come direct from the retailer (as in Wal*Marts Retail Link) or may be collected by a field force contracted by the supplier themselves. In any case, it is the job of a good Category Manager to turn data into actionable decisions for the company and for the retailer alike.
A Cat:Man+ performance and benchmarking survey will be an ideal way to assess how you business shapes up to Category
Management across a whole spectrum of attributes including knowledge, culture, retail relationships, tools of the trade etc.
You will be able to identify how to boost your capabilities in Category Management, both short ("quick fix") and long term
improvements and see comparisons versus some industry best practices.
As your capabilities grow, you will need efficient ways to understand your data, understand what is happening in the field, and
improve the profitability of your promotional activity. Take a look at our software page for some interesting tools which will
be invaluable.
1. The spread of Category Management into more diverse retailing sectors. Initially, Category Management was a grocery
or "Mass Merch" concept; however it has now spread into other retailing sectors such as DIY, Pharmacy and Cash & Carry.
And in recent times, Borders Bookshop has implemented Category Management as a process within its bookstores. Expect this
trend to continue.
2. The data explosion. The amount of data has been "exploding" now for 20 years, however it still shows no sign of abating,
and Category Management is becoming highly "information technology" and mathematics oriented. That, coupled with the fact that
there is still a large "social science" element to Category Management (for example in understanding the psychology of Shopper Behaviour)
and you get a very rich and diverse job function indeed !
3. Streamlined Processes. The formal 8 step process may well be comprehensive, but is often too laborious, time consuming and not rapid enough in
many fast-moving markets. Companies are increasingly looking for faster, more flexible, streamlined processes which deliver results in shorter timescales.
4. Aisle Management. Just as products and brands make up categories, so do different categories make up aisles. And as many
retail buyers are not in charge of just one category but in charge of a whole aisle, so all the issues around products in categories
can be upscales to the same issues of categories within aisles. There may well be good openings for suppliers who can take on
the role of "aisle captain" - if they can handle the workload !
5. Relationship with other disciplines, eg Supply Chain. The Walmart Retail Link database is already very heavily logistically-focussed, and - given the
strong requirement to have the right product at the right place at the right time - who can blame them ? Some of the lines
between "day to day category management" and "day to day supply chain management" are already a little blurry with Walmart suppliers
and this looks set to be the trend. This paragraph is taking us in the direction of another already-established process and set of buzzwords -
Efficient Consumer Response - or "ECR". Let's save the detail of that for another day.
6. The increasing use of Field Marketing activity. The explosion of media channels such as satellite channels means that it is becoming increasing difficult to target an advertising message through traditional above the line means. Couple with that the increasing demands of the retailer to have sales and marketing investment not diluted across consumers in general, but spent on their consumers and shoppers. Within this, though, expect to see a few counter-trends such as some retailers moving to "clean aisle" policies, or an increasing insistence that suppliers display material must be tailored to their corporate feel.
7. Micro-marketing. The ability to analyse store sell-out data by barcode and by individual store means that the traditional
concept of "one range fits all" may have to make way for a more flexible approach. Already, Walmart in the USA has the concept of
"Store of the Community" where individual store ranges are tailored to the demographics of the local population. For example, stores in
areas of large Hispanic communities have product ranges more biassed to their tastes. As stores become increasingly keen to
use their information technology to squeeze ever more juice out of Category Management, expect to see some more of this.
8. Development of Category Management across the world. At the moment, Category Management is carried out predominantly in
North America, Canada, (Mexico if you deal with Walmart), Australia, the UK and Western Europe. As other countries develop,
their expertise and expectations of Category Management will grow too, fuelled by the growth of International Retailers such as
Tesco, Walmart, Carrefour, Auchan and Metro expanding into new countries and immediately injecting their expertise into them.
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Why do Category Management ?
Quite simply because this is increasingly the way that retailers want to do business with suppliers ! And unless
you have the knowledge and skills to converse and actively contribute in the Category Management process, you may
find yourself becoming increasingly marginalised as a supplier by your major customers.
A Brief History of Category Management.
Category management started in North America in the 1980's and marked a change in relationships between
supplier and retailer from the traditional adverserial stance to a more collaborative approach. In 1992,
AC Nielsen began publishing information to fmcg suppliers and the Category Management process began slowly to
gain momentum across the UK, Europe and Canada. At first, it was limited only to grocery (hypermarket and supermarket)
retailing, but as the advantages became more clear, it spread into other retailing sectors such as pharmacy, C&C and DIY.
Following this inital hiccup, there was a brief period during which some retailers reverted to "old fashioned trading" but
Category Management then re-gained its drive in the later 1990's embracing many aspects which should have had more prominence the first time around, including
planogramming, price architecture, promotional strategy and shopper understanding.
What is a Category ?
Good question. A 'category' is usually defined (if at all) as "a group of mutually substitutable items."
So for example, for cleaning my teeth, I could use Sparkliwhite 250ml toothpaste or Cheesigrin 300ml toothpaste
to do the same job. Therefore, both products could be considered as being in the Category "Toothpastes" since
they are mutually substitutable.
What is a Category Captain ?
Often, a retailer will invite one of his suppliers with abilities in Category Management to be the Category Captain.
The Category Captain will usually be the first point of contact for advice and information and is typically designated to lead the strategic direction of the category
though other suppliers may also be invited to comment. The Category Captain may receive additional data from the
retailer, not given to other suppliers, about the performance of the category, and should benefit from
having a more influential voice with the retailer (for example in deciding range and promotions) and increased
and easier contact with the buyer.
Retail Link
Retail Link is the proprietry information-sharing database of Wal*Mart (Asda in the UK). Since 1996 it has been accessible via the internet. It is so key for doing business with Wal*Mart/Asda that it is worth a paragraph of its own.
Walmart/Asda suppliers are expected to be conversant with Retail Link, as Walmart/Asda consider it the main vehicle for Category monitoring and discussions. As a Walmart/Asda supplier you may be also expected to run weekly reports.
The website itself is extremely comprehensive, and the computer which runs Retail Link is reputed to be the second biggest in the world (after the Pentagon!)
In order to address this, Cat:Man+ has created some bespoke software which can ease the strain of amalgamating the data across different sources.
What is the 8 step process I've heard about ?
The formal 8 step Category Management process was developed about 10 years ago by the Partnering Group and has been used as an
"industry-standard" cyclical model for the Category Management process.
The eighth step (8) is one of review and evaluation, which takes us back round the cycle to stage 1.
What is involved in Category Management ?
Category Management in practice covers a wide scope of activity, and a really good Category Manager will be multi-talented, able to deal with a diverse range of projects.
Since Category Management activity often involves marketing activity specifically within the retailers themselves, the Category Manager may find him/herself working a lot in the area of Field Marketing, in projects such as merchandising, point of sale displays, stock checking and working with the retailer as to the exact style, design and layout of the fixture, often combined with useful product information to guide the shopper to his/her purchase (in-store retail "info-tainment" - a portmanteau expression often compressed even further to "Retailtainment")
Promotional activity is also an area in which the Category Manager can expect to be involved : deciding which promotional mechanics work best in what situations, and advising both the retailer and his/her own sales/marketing department on the optimum promotional calendar per retailer in order to achieve the category objectives.
What do I need to do Category Management ?
At a basic level, all that is needed is the willingness, the enthusiasm and some knowledge. However, as your
expertise in Category Management grows, you will need to ensure that you have the right level of investment put in place
together with the right culture, the appropriate human resource and the necessary "tools of the trade" in place in your company. Sometimes,
the investment is already there in the business, it is just being spent on something else, often something less profitable.
The future of Category Management ?
After some initial hiccups, it certainly looks like Category Management is not only here to stay, it is going to
increasingly become a way of doing business, and those suppliers who cannot do it well, do so at their peril.
Okay, now it's time for me to gaze up into the stars, dust off the crystal ball, get the tarot cards out, and make
some predictions about Category Management over the next few years.
If you think that "Cat Man" is the way forward for your business, then whatever your circumstances, CAT : MAN + will be of use to you. Why not give us a call or send us an e-mail to see what we can do for you ?
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