The Future of Category Management

Transcription

1 The Future of Category Management Creating value in the current market conditions JERRY SINGH

2 Presentation Objectives Category Management Concepts & Evolution Barriers To Successful Implementation Current Market Conditions & Trends Implications for Industry Participants 2

3 Category Management Concepts & Evolution

4 Category and Brands: Needs Vs. Wants Consumer Needs Consumer Wants? CATEGORY BRAND 4

5 Definition of a Category A category is a distinct, Manageable group of Products/Services that consumers Perceive to be Interrelated and/or Substitutable in meeting a Consumer Need ECR Committee 5

6 The Anatomy Of A Brand Attributes Benefits Brand Soul Or Essence Positioning Equity 6

7 Category Management Enablers: Bar Code Scanning and Information & Communications Technologies Bar code scanning led to faster and more accurate product movement data across the supply chain. Shelf Space management emerged to take advantage of the store level sales data to allocate space in line with consumer demand. Quick Response/Efficient Consumer Response were industry initiatives to improve supply chain efficiency. Initial pilots showed Sales and Inventory turns could be improved and out of stocks and reordering lead time reduced with Retailer/Suppler cooperation. Innovative retailers and suppliers built technical and organizational infrastructures to take advantage of the opportunities arising from the new technologies. 7

8 Category Management & Efficient Consumer Response Industry initiatives identified opportunities for major improvement through distributor supplier cooperation with Category Management focusing on the top line, and Supply Chain Management focusing on reducing costs. Replenishment Shopping Basket Sales & Profit Assortments, Demand Side: Category Management Promotions, New Product Category Reach Purchase Frequency Introductions 8

9 What is Category Management? The following Committee Definitions have been used US & Europe ECR Committees Category Management is a distributor-supplier process of managing categories as Strategic Business Units, producing enhanced business results by focusing on delivering superior Consumer Value FMI-Kellogg School of Management "The process of managing items in a product category as a strategic business unit by jointly determining with the suppliers pricing, merchandising, promotions and product mix based on category goals, the competitive environment and consumer behavior 9

10 Developing and Monitoring a Category Plan 10

11 Market/Retailer Assessment Opportunity Gap Analysis How is the category currently performing? Market share Market growth By channel and competitor Is the current position and trend acceptable given category role? Is there an opportunity gap (the category share of the market less than the total retailer s share of the market)? 11

12 Category Assessment: Analysis from Four Perspectives Market Market Share & Trends/Gaps Retailer Contribution & Productivity Category Sub-Category Segment Brand SKU Consumer Buyer Profile & Purchase Behavior Supplier Share & Efficiency 12

13 Quadrant Analysis - Market Share Gap SLEEPERS Market Share 23% WINNERS Suspension / Struts Interior Appearance 22% Exterior Appearance Midpoints Mkt Share = 20% Mkt Growth% = 2.5% Ignition 21% Brakes Market Growth Battery 19% Truck Accessories Starters/ Alternators Wiper Systems 18% Motor Oil QUESTIONABLES 17% OPPORTUNITIES 13

14 Category Marketing Strategies Traffic Building Transaction Building Profit Generating Turf Protecting Cash Generating Excitement Creating Image Enhancing Consumer Draw Increase Register Ring Increase Category Profits Defend Sales & Shares Increase Cash Flow Generate Sense of Opportunity Reinforce Retailer Image 14

15 Category Marketing Stratogram: Coffee Category Category Role Strategies Products Traffic Building Premium Regular Coffee - Top 3 brands gram sizes Preferred Transaction Building Instant specialties Mid to premium priced regular coffee Coffee filters Coffee Cream Specialized coffee sweeteners Profit Generating Mild & decaf. coffee - all sizes Instant traditional Private label Substitutes 15

16 Category Tactics Specific Tactical Plans for: Assortment Pricing Category Tactics Shelf Presentation Promotion 16

17 Barriers To Successful Implementation Of Category Management

18 Barriers To Successful Implementation Of Category Management 1. Category definitions vary across the industry 2. Data needed for Category Management comes from diverse sources 3. Retailer-Supplier strategies must align & agree on information sharing between partners 4. Organization structures and processes must facilitate Category Management 5. Information Infrastructure must enable easy access to data and analysis 6. Critical mass needed to realize full benefits as total system synergies are greater than individual categories 18

19 Category Definition Process Define the consumer need... SKU SKU SKU All products that meet the need Interrelated Operationally Feasible Measurable SKU Substitutable Manageable The CATEGORY (SKU Grouping) 19

20 Category Definition: Consumer View Most Retailers Category definitions are based on format strategy and store design & layout Most Manufacturers Category definitions are based on product scope and operating units Defining the Category with a Consumer focus is essential A Cornell University survey found that Retailers tracked 191 Categories, Wholesalers 184, and Nielsen 292! 20

21 How should the category and its structure be defined? From the consumer s perspective... But the target consumer can vary 21

22 The Retailer s Dilemma How should the Oral Care Category be defined? Floss Denture Adhesive Toothache Relief Broad Tooth Powder Tooth Brush Mouth Wash Tooth Paste Narrow 22

23 Category Assessment data comes from diverse sources requiring information sharing. Information Manufacturer Consumer knowledge Market insights Creative marketing approaches Store DATA Category POS-information Store based measures Supply Chain costs Market Research Companies ACNielsen, IRI, GfK,... DATA 23

24 And better information is needed Category Management leads to: Consumer driven category definitions Need for down-to-sku data Different category segmentation Need for store level detailed data (for in-store execution of category plans) Need for customized category and market data 24

25 Strategic Alignment Before Category Management can be implemented Retailer & Manufacturer Strategies must be aligned. What is the Mission of our Company? Who is the Target Customer? What are the Format/Channel strategies? What is the basis of competitive positioning? What are the financial, marketing and product supply strategies? What is our relationship with our trading partners? 25

26 Alignment of well defined, complete corporate strategies leads to a common vision for the category that guide key decisions Manufacturer Retailer Strategic Alignment Senior management involvement is needed to force internal strategy linkages, strategic decision-making, and resource allocation needed to reveal mutual value chain opportunities 26

27 Reengineering Of Customer-Supplier Interface Category Management has resulted in reengineering of sales & marketing functions of major manufacturers and buying & merchandising functions of major retailers world wide. Sales Customer Teams Buying/Merchandising Category Teams This restructuring and acquisition of new skills and Infrastructure to support the reorganization takes time 27

28 Customer Interface Design Manufacturer Pre CM Retailer Logistics Logistics Marketing Retail Operations Sales Buying Merchandising Store Operations Finance & Systems Post CM Finance & Systems Logistics Marketing Customer Team Manager Retail Operations Finance & Systems Logistics Merchandising Category Manager Store Operations Finance & Systems Customer Team Category Team

29 Organizational Factors Affecting Category Management Execution People Structure Skills Execution Rewards & Recognition Information Sharing Decision Making 29

30 Category Management Information Infrastructure Syndicated P.O.S Retail HQ *Category Teams *Purchasing/Merchandising DATA Supplier Headquarters Customer Teams Wal-Mart technology provides real time feedback and item level control Store *POS/Scanning SCAN DATA Shipper Warehouse Warehouse DSD 30

31 Achieving Critical Mass Key To Realizing Benefits Integration: Ongoing Foundation: Pilots To build internal awareness/enrollment To develop a plan to achieve capability To develop basic capability To understand / experience Category Management To achieve early results Operationalization: Rollout To operationalize Category Management To design necessary organization enablers Systems Organizations Performance Metrics Rewards To begin organization transition To begin achieving initial results To develop advanced capabilities Micromarketing Activity Based Costing To establish routine ongoing process To create sustainable organization change To achieve full potential benefits 31

32 Current Market Conditions and Technology Trends

33 Current Market Conditions Top 250 retailers had $3.62 trillion in 2008 sales (+11.4%) and 3.7% margin, but this year s global crisis has seen flat sales, bankruptcies, and private label growth 1. Retailers cutting costs, luxury in real trouble 2. Risk mitigation across the board 3. Retailers focusing on shopper experience 4. Human Resource Management emphasis 5. Multi-Channel approach 6. Smaller express or high frequency stores 7. Think Global, act local Glocalization 8. Branding emphasis 33

34 Retailers cutting costs as the only way to maintain profitability: Consumer spending is down with their net worth Retailers focusing on core business Retailers evaluating most effective formats For the future Retailers consolidating support functions Retailers negotiating leases and better deals with suppliers 34

35 Risk Mitigation across the board due to financial markets disruptions: Currency market volatility Supply Chain disruption Diversification of sourcing Natural/man-made disasters Need to reduce leverage 35

36 Retailers focusing on shopper experience Better store layout or design Better Customer service Improved/greater product assortment & information Increased focus on shopper insights 36

37 Better management of human resources Training and selection Ways to motivate Reduce turnover Raise productivity to compensate for cuts to the payroll To reduce expatriate deployment 37

38 Multi-channel approach Consumers increasing cross channel shopping Internet and store retailing coming together Manufacturers increasingly turning to the internet Need to integrate consumer offers across channels 38

39 Smaller or express stores To serve niches Address consumer need for shopping convenience Manufactures recognizing potential for high frequency stores Better suited to emerging markets as Retailers globalize 39

40 Think global, act local or Glocalization Retailers have been slower than manufacturers to Globalize but: Top retailers have about 25% in sales outside their home markets Eight of the top ten operate in at least seven countries The top 250 retailers account for $3.62 trillion in sales in 2008 Margins have remained stable at 3.5% Format diversification and supply chain Strength has been key to success 40

41 Branding ever more important Only two ways to succeed in today s market conditions: Lower costs and prices due to most efficient supply chains or economies of scale Focus on managing brands and the consumer experience (Least successful are those with uncompetitive prices and undifferentiated shopping experience) 41

42 Walmart s Sales Growth--$ Billion Current year s flat sales should not blind us to long-term trends CAGR 9.3%

43 Mega-retailers will Dominate Consumer Product Retailing 43

44 Winds of Change in the Consumer Products/Retail Industry Growth and perceived consumer value Consumers seek low cost for basic goods with low emotional investment Megaplayers capture market share by delivering good enough value at very low prices Undifferentiated competitors fade into irrelevance Consumers seek greater personal value when purchasing goods with high emotional importance Differentiated specialists build profitable niches by delivering relevant value to targeted groups of consumers Mass Competitive Spectrum Targeted 44

45 Technology Trends Data Warehouse Appliances replacing Corporate Data Warehouses Integration of Category Management with Customer Relationship Marketing Collaborative Planning & Forecasting 45

46 Retailer Data Warehouses 46

47 Manufacturer Data Warehouses Japan Japan Japan 47

48 Data Appliances Replacing Corporate Data Warehouse Cost per Terabyte is 1/10 th compared to Older MPP technology Category Data Appliance Examples are Netezza, DATAllegro, Kickfire new technologies That have emerged in recent years to compete with Teradata 48

49 Category Management Focus Portfolio Management Strategies Customer Segments Loyal Customers Destination $ Category Roles Preferred/ Occasional Routine Seasonal $ $ Convenience $ Split Customers $ $ $ $ Infrequent Customers $ $ $ $ New Customers $ $ $ $ Marketing Strategies Driven by Category Roles Optimizes Category profitability and GMROI Balanced Scorecard critical to build customer equity. 49

50 Customer Management Focus Consumer Segmentation Strategies Category Roles Customer Segments Destination Preferred/ Routine Occasional Seasonal Convenience Loyal Customers Split Customers Infrequent Customers New Customers $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Marketing Strategies Driven by Customer Segment Goals Differentiates customer value proposition to maximize customer equity Balanced scorecard needed to optimize profitability 50

51 Collaborative Planning & Forecasting Weekly Orders & Forecast Updates Store/SKU Sales Forecast Supplier s WH Retailer s DC Retail Store Consumer Supplier Generated CRP Full EDI of invoices, billbacks, coupons, funds transfers Electronic POS based Consumer Promotion & Joint New Product Introduction Frequent Shopper Database 51

52 Implications For Industry Participants

53 Implications for industry participants 1. Differentiate from competition 2. Offer customer experience that excites 3. Improve Infrastructure for collaboration 4. Focus on building strong brand equity 5. Build direct links with the consumer The current crisis should be turned into an opportunity! 53

54 Differentiate From Competition Critical for long term survival: Retailer strategy should be low price or differentiation based on product, quality, or service Retailers should manage private label without diluting store s brand image Manufacturer s should focus on product innovation and quality/price gap vs. private label Manufacturer s should build sustainable Partnerships with leading retailers 54

55 Improve Shopper Experience Examples are Walmart s Project Impact or Walgreen s Customer Centric Retailing: In-store merchandising is key to winning the First moment of truth The practice of Category Management should focus on instore merchandising Retailers should redesign store layout & visual Merchandising 55

56 Improve Collaboration as the market/technology trends are making it critical: Protecting margins through cost cutting is essential for success Category & Supply Chain management can take costs out of the value chain Information & Communication technology cost continue to decrease Glocalization is facilitated through collaboration 56

57 Build Brand Equity is key to both retailers and manufacturers to sustain consumer loyalty: Cross channel shopping behavior is on the increase Product innovation continues to be the best way to avoid commoditization Shopper insights to win the purchasing decision builds brand equity 57

58 Build Direct Links With The Consumer Through internet shopping and mobile couponing: Internet shopping continues to grow faster than store retailing ($178 billion in 2008 versus $87.5 billion in 2004 doubled in 4 years) Major retailers integrating internet offering with in-store shopping Major manufacturers offering coupons through their websites and links through retailers Manufacturer s developing direct to consumer Ecommerce capabilities 58

59 Implications for Category Management Retailers must focus much more on store level Category management to influence consumer channel selection and in-store purchase behavior. Manufacturers must improve in-store merchandising and understanding of shopper insights in their Category Management practices Syndicated Data providers should increase trading area and store level market research offerings Category Management is ever more important in today s crisis as collaboration to improve topline is critical to long term survival 59

60 Thank You! 60