Category Mgmt-session 11 Part 1

8/12/2019 Category Mgmt-session 11 Part 1

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CATEGORY

MANAGEMENTPROCESS

Session : 11



The Category Management business process is a structured,measured set of activities designed to develop and implement awritten category business plan.

It is a specific ordering of work activities across time and place, witha beginning, an end, and clearly identified inputs and outputs. As

such, it is a structure for action.

The category management business process adopts theconsumer's point of view.

Using this structure, supplier and distributor collaborate to producevalue for consumers in the most efficient and effective manner.

Clearly defined processes are needed for ensuring that consumer,supplier, and distributor needs are satisfied.

The Category ManagementBusiness Process













Best Practices Category Management consists of six components.

Two of these are considered essential without which CategoryManagement cannot be started and are therefore called corecomponents.

The other four are considered enabling, since without these CategoryManagement can be started but not institutionalized on an on-going basis.

The two core components are strategy and business process.

The four enabling components are scorecard, organization capabilities,information technology, and collaborative relationships between tradingpartners.

Components of CategoryManagement



Components of CategoryManagement

•While these six components apply to both distributors and suppliers, thereare areas of overlap and differentiation.

•Some components-strategy, scorecard, information technology andorganization capabilities-have major differences in their developmentand execution between the different participants in the value chain.

•On the other hand, business process and collaborative relationships havesignificant overlap, since Category Management requires the alignment

of business processes in the distributor/supplier organizations.





Category Development Index (CDI) – The level of developmentof a category for a specific region, market or retailer, comparedwith total development (e.g., TTL U.S.). Similarly, a BrandDevelopment Index compares a brand's development within aregion or market to its total development.

CDI = % of Category $ Sales in Market "X" * 100% of TTL U.S. Category $ Sales





CONSUMER

CENTRICCATEGORYMANAGEMENT



•Segmenting and targeting consumers to get the right products in

front of the right shoppers in the right stores

• Clustering stores based on the sales potential of brands or

Categories

• Demand gapping, or determining the difference between existing

sales and potential sales in a category

• Developing a marketing plan for each significant customer group

The Process











Clustering – A geodemographic (lifestyle/lifestage) approach togrouping stores based on similarities of trading area profiles, or"clusters.“

Clustering reveals shopper composition for each store and

percent of each type of shopper living in a store's trading area,and it may be useful to align retail strategies and operations.

Clustering is also known as "Micromarketing."

Clustering





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Tips and Tricks – Assessment

Assessment is “Business Question Driven”

● Why do Consumers buy the category?

● Who buys the category?

● When do Consumers buy the category?

● How do Consumers buy the category?

● Where do Consumers buy the category?

A Case in Point

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Scorecarding enables progress

against goals to be measured for

each of the targeted consumer

Groups.

Implementation stage adds another

dimension of keeping track of

which strategies are to be applied

at which stores.

A Case in Point



Role of the

Playersin

Category

Management



Role of the Retailer

•The retailer mustcommunicatecorporate goalsand categorystrategy to thevendor partners.

Sets Strategy

•What version ofcategory

managementshould befollowed?

• How many stepsto the process?

DeterminesProcess

•POS data,

•financial data,

•shopper data gathered

from their own loyalty cardprograms.

•Household panels run bymarketing informationcompanies like ACNielsen.

•In some cases, themanufacturer plays thelead role in gathering data.

•Mining this data yieldssignificant insights aboutconsumers and their

buying preferences.

Gathers Data

Ensures RetailCompliance

• What does the datareveal?

• Does it match up withthe retailer’s goal inthe marketplace? Ifnot, what happens?

UltimateDecisionMaker



Role of the Manufacturer

•The manufacturerneeds to understandwhat the retailer is

trying to accomplishand what strategy isused to reach thatobjective.

Understandthe retailer’s

strategy

•Programs andpromotions thatbenefit only the brandand not the categoryand store shouldn’t beconsidered.

• The rule is: categoryfirst and brand second

Support retailstrategy

•To determine if theirstrategy meshes withthat of the retailer toconflict and abreakdown of thetrading partnership

Share theirown strategy



The Concept ofCategoryCaptain

Category Captain



When category management first started in the early 1990s, a retailer

would have four or five manufacturers in the same category rushing in

with their programs. Each presentation had a different context, rationale,

and recommendation.

The retailer rightly wondered, “Who’s right and who’s wrong?”.

Retailers eventually selected one manufacturer as a trusted partner

that could be relied on. It was a company they believed had the

resources, wherewithal, and commitment to grow the category.

That company came to be called the category captain.

The other three or four manufacturers competing in the same category

were excluded from the process.

They became category advisors or validators. They cross-checked

the category captain’s recommendation.

If the captain was doing a good job, the advisor merely provided a little

twist or added something that perhaps was missed.

Category Captain

Category Captain



Category Captain

Category Captain



The choice of this trusted partner should take into account the following:

•Ab il i ty to think strategical ly•Abi l i ty to be un biased

•Ab il i ty to access relevant inform at ion

To be effective in meeting the needs of retail category managers,

the top characteristics of an effective supplier are:

• Accuracy,•Timeliness of the information,

•Responsiveness, and

•Creativity

The best suppliers have an intense focus on supporting the initiatives of their

own company while working within the retailer’s strategic framework

to drive sales and profit dollars in the stores.

Suppliers must bring a category perspective and not solely a brand outlook.

Category Captain



ROLE

OFA CATEGORY

WITHINA

RETAILER’S

TOTAL

ASSORTMENT

Role of Category within a



Retailer’s Assortment

Role of Category within a



RETAIL BRAND REINFORCER New Categories

High fashion and symbolic categories

High technology product categoriesIncludes 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 categoriesSymbolic 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


Role of Category within ai



Consumer-based category roles are defined according to:

•the percentage of households that buy the category and

•the frequency with which it is purchased

Consumer motivation is likely to be quite different depending on whethermost households buy the category every week and spend a large part oftheir shopping budget on it (e.g., bread, carbonated beverages), or if only

a few interested consumers make infrequent purchases in the category(e.g., vinegar, yeast).

Categories can be classified into one of four types:

(1) staples (high penetration/high frequency);

(2) niches (low penetration/high frequency);

(3) variety enhancers (high penetration/low frequency); and

(4) fill-ins (low penetration/low frequency).


Role of Category within aR t il ’ A t t



VARIETYENHANCERS

STAPLES

FILL-INS NICHES P E N E T R A

T I O N O F

H O U S E H O L D S

H I G H

HIGH

L O W

LOW

FREQUENCY OF

PURCHASE


Role of Category within aR t il ’ A t t



Retailer’s Assortment On the basis of Profits Vs Sales



EfficientConsumerResponse

ORIGIN



The Concept



WHAT IS ECR? ECR is about, "Working together to fulfil consumer

wishes better, faster and at less cost"

p

The Concept



Embedded in this simple statement are two fundamentalprinciples that guide all ECR efforts,

•Focus on Consumers: A commitment to the belief that sustainedbusiness success stems only from providing consumers withproducts and services that consistently meet or surpass their

demands and expectations;

•Working together: Recognition that the greatest consumervalue can be offered only when organisations work together,work internally and with their trading partners, to overcomebarriers that erode efficiency and effectiveness.

p

Efficient Consumer Response



ECR implies a complete integration of information and supplychain with the implementation of new processes for commerceand industry.

This means for example that orders will be generated withmodern information techniques from sales data of individualproducts. These orders are adapted to the consumption of theproducts ("selling to the scanner").

A fundamental change of view is necessary for the successfulrealization of ECR. The confidence between the cooperationpartners is the main prerequisite for an implementation of ECR.

ECR requires department-spreading responsibilities for the

control of the flow of goods and implies organizational changeson the supplier side and the commerce side.

ECR secures a continuous flow of goods and information,creates an optimal assortment with a simultaneous stockreduction and avoids supply gaps.




Traditional channel problems Forward buying and diverting

Excessive inventories

Damages and unsaleable goods

Complex deals and deductions

Too many promotions and coupons

Too many new products


Category management

“Value” pricing replaces promotions

Continuous replenishment and cross-docking

Electronic data interchange New performance measures

New organizational processes and structures

Internet-based network for supplier-buyertrading




Efficient consumer response

Key issue

1How can collaboration be extended

across the supply chain to focus

on meeting consumer demand?




Efficient consumer responseCategory management

Establishinfrastructure

Optimizeintroductions

Optimizeassortments

Optimizepromotions

Integratedsuppliers

Synchronizedproduction

Continuousreplenishment

Automated storeordering

Category

management

Product

replenishment

Reliableoperations

Cross-docking

EDI EFTItem coding

and databasemaintenance

ABCEnabling

technologies





Categorymanagement


Enablingtechnologies

Required

capability

Accountmanagement

Demandmanagement

Multifunctionalselling teams

Price listrestructuring

Effective andcustomized

promotions

Joint inventorymanagement

Cross-dockoperations


Effectivelogistics andproduct flows

Quick response

Effectiveinformation

sharing

Automatedordergeneration

Bar-codingand the use ofother scanningtechnology




Enabling technologies

Scanning data

Data warehousing

Data mining

The data include

Demand / consumption / sales information

Cash flow

Stocks of finished goods / work in progress

Delivery and output status





These advantages will be reached through the following basicstrategies:

Efficient ReplenishmentOptimization of the logistics chain by replacing the push strategies bypull strategies. It is also called Continuous Replenishment (CR).

Efficient Assortment

Revision of categories for an increase of customer satisfaction andoptimization of product profitability. Essential art of EfficientAssortment is the Category Management (CM).

Efficient PromotionReplacement of the stock-up system with large quantities and

campaign prices by an efficient common purchase policy.

Efficient Product IntroductionCooperation of commerce and industry for a common developmentand introduction of new products.


















CATEGORYMANAGEMENTBENEFITS

BENEFITS



Reduce excess inventory

Improve return on investment (ROI)

Improve comparable store sales

Enhance knowledge of the consumer

Improve the speed to market on new productsReduce out-of-stocks

Maximize shelf efficiencies

Increase turns

Identify problem brands

Identify procurement opportunities

Improve return on marketing funds invested for suppliersMaximize vendor relationships



CATEGORYMANAGEMENTLIMITATIONS

LIMITATIONS



Considerable Re-organization required by the Retailers andtherefore has been met by inhibiting factors like:

i. Skill required

ii. Change in perspective to view suppliers as partners andshare information

iii. Reluctance to change in-appropriate organization structure

iv. Lack of clear strategic plans for product ranges

v. Concentrating on efficient merchandising and logisticsmight result in lower priority to customer experience

vi. Category managed product ranges are safer and offermajority of the customers in majority of purchase decisions“efficient” selection of market leading products, however,they may try to look boring or over-managed

LIMITATIONS



vii. Retailers who focus solely on the profitability of thecategory lead to “banalisation of retailing” where ranges areubiquitous and uninspiring.

viii. Threat to Smaller suppliers – establishing CategoryCaptains to strengthen a particular Product Category leads to

the larger suppliers exploiting the smaller suppliers whoincrease their market share at the cost of smaller suppliers.

ix. Most successful in large categories with dominant andorganized suppliers not for smaller suppliers.

x. The integrated ECR systems are expensive to implement.



CATEGORYMANAGEMENTFUTURE

FUTURE



There are any number of poignant questions to which we do not know the

answers:

• Are retailers being more efficient and better able to meet the needs of

their shoppers with category management?

• Is the retailer more efficient after adopting category managementprinciples, and does that efficiency lead to greater profitability?

• Are manufacturers actually making money at the category management

process, after we consider all the costs they incur to be a part of the

retailers’ “team”?

• Are consumers any happier with their set of stores when the stores are

subject to category management initiatives? Are they spending more?

FUTURE



The future, then, suggests a re-tooling of the proces,a more partnership-like

approach may be what’s needed to make category management work for all

parties.

We can get there by:

• Understanding what it is we want to achieve with category management.

• Understanding what resources make sense to allocate to category

management (personnel, research funds, etc.).

• Agreeing what is each partner’s responsibilities (and the limits on those

responsibilities).

•Doing the research necessary to improve brand and category performance,

where possible, with an eye toward a solution that is compatible with the

retailer’s strategy.

• Being unafraid to say that there is no basis for improving a category.

• Using research tools that pass reliability tests and represent sound

methodological practices.

BIBLIOGRAPHY



Retail Product Management: Buying and Merchandising

by David Gillooley, Rosemary Varley

ACNielsen Consumer 360, “Simplifying Complexity”

Samir Bhaloo, International Business Consulting Manager

http://www.youtube.com/watch?v=Ss8Dn8_BZu0&feature=related

http://www.categorymanagement.com/articles1-cmi.html









TH NK YOU

for being a

WONDERFUL

UDIENCE…

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Category Mgmt-session 11 Part 1