What is Category Management?15 April 2016
The Category Management definition from the Category Management association is ‘Trading partners collaborating to determine the point of optimisation in pricing, promotion, shelving, and assortment to maximize profitability and shopper satisfaction’.
In layman’s terms Category Management is about suppliers and retailers working collaboratively to understand the current and future needs of the shopper, prepare and eater in order to deliver on the shopper, prepare and eater’s needs & expectations.
The key difference between Category Management and Marketing is an analytical one. Category Management is about understanding data to drive change and by contrast shopper marketing is more about understanding emotions or motivations.
Successful Category Management techniques draw on the latest industry trends, leverages available data both quantitative & qualitative, looks to identify opportunities and deliver recommendations that drive profitable sustainable sales for the both the supplier & retailer, whilst delivering the needs of the shopper. This purchase decision hierarchy post will explain more about how the shoppers’ needs can be identified.
Production Push to Consumer Pull
In the mid 1990’s Category Management emerged from the concept of Efficient Consumer Response (ECR), where retailers and suppliers started working together to fulfil shopper requirements better, faster and at less cost. This was based around the concept of Consumer Pull rather than Production Push. Moving away from ‘Here is what we have to sell’ to ‘This is what I want to buy’.
A key reason for this introduction was the retailers' need for suppliers to add value to their whole category not just the supplier's own products. For example, in a category containing product A and B, the situation would arise when every time product A was promoted, the sales of product B would go down by the amount that product A would increase, resulting in no net gain for the retailer. The introduction of category management imposed the condition that all actions undertaken, such as new promotions, new products, re-vamped planograms, introduction of point of sale advertising etc. were beneficial to the whole category.
A further reason was the realisation that only a finite amount of profit could be milked from price negotiations and that there was more profit to be made in increasing the total level of sales by driving shopper satisfaction. Lastly was that the collaboration with the supplier meant that supplier's expertise about the market could be drawn upon, and also that a considerable amount of workload in developing the category could be delegated to the supplier.
Category Management 8 Step Cycle
A Category Management process and model was built, whereby each category across the store was analysed, taken apart and put back together according to the needs of the shopper and based on facts gleaned from data. An average plan took between 16 and 24 weeks (excluding implementation), had a team of at least 12 people. Involved the completion of between 60 & 100 different data templates and required an external consultant / facilitator just to organise, run each category plan and conduct the category training. The plans were big, cumbersome and were normally poorly implemented, generating mixed results from such a drawn out timescale.
Category Management 2.0
Today’s Category Management still maintains many of the same principals, but it is no longer a project that is visited once or twice a year because Category Management has now become business as usual and widely accepted as a key part of day-to-day collaboration between retailers and supplier to jointly deliver shopper, preparer, and eater satisfaction. Many suppliers have dedicated Category Managers and Category Analysts that work full time on achieving the above core principals of shopper and eater satisfaction, whilst driving profitable sales for both their own business and that of the retailers.
This movement towards a relationship of trust, collaboration, sharing of data, insight and joint business planning delivers tangible benefits in conjunction with the role of the Account Manager (NAM) who focuses are on their business slice of the pie whilst the Category Manager has the focus of growing the whole pie.