Chapter 9 : Category Management

Transcription

1 Chapter 9 : Category Management

2 Learning Objectives The concept of Category Management The reasons that have caused emergence of Category Management Develop an overview of the Category management Process Identify the limitations and advantages of Category Management Chapter 9 : Category Management 2

3 Concept of Category A category is a distinct manageable group of products that consumers perceive to be interrelated and/or substitutes of each other. Products are traditionally grouped into departments for operational ease. A Category is carefully defined based on consumer shopping behaviour. Chapter 9 : Category Management 3

4 Concept of Category Management Category Management is the process of managing the product group or category through trade partnerships in order to maximise sales and profits by satisfying consumer needs. It is an evolving approach to retail product management. It aims to improve retailers performance in a category. Chapter 9 : Category Management 4

5 Concept of Category Management The implication of category management is that decisions concerning final assortment directly impact the sales. It recognises the fact that products within a category are interrelated and hence can be better managed as a category. Each category is treated as a Strategic Business Unit (SBU). Chapter 9 : Category Management 5

6 Features of Category Management It relies on trade partnerships and has a collaborative approach between retailer and supplier. Main objective is to maximise sales and profits by linking performance of the category to customer satisfaction. The focal point of category management is the consumer. Chapter 9 : Category Management 6

7 Causes for Emergence of Category Management Changes in consumer Economic factors Causes for emergence of Category Management Emergence of new retail formats Advances in IT Competition Chapter 9 : Category Management 7

8 Causes for Emergence of Category Management A. Changes in consumer main cause for emergence of concept of category management is the change in the consumers who are today better informed and aware. Demographics and psychographics of consumer have changed. B. Emergence of new retail formats New formats like category killers and hypermarkets have increased competition manifold. These formats work on a category level and not at a store level. Chapter 9 : Category Management 8

9 Causes for Emergence of Category Management C. Advances in IT extensive use of IT enables the retailer to make better informed decisions since they have sales data to understand target consumer segment. Technological advances have enabled the retailers to obtain, organise, access, analyse and act upon the real-time data required for effective category management. Chapter 9 : Category Management 9

10 Causes for Emergence of Category Management D. Economic factors affect the costs incurred by a retailer slow growth of domestic economy, decline in birth rate, inflation, etc. Retailers have to lower costs in order to ensure adequate margins and profitability to sustain themselves. This is possible by bringing in greater work efficiencies. Chapter 9 : Category Management 10

11 Process of Category Management Step 1 defining a category It influences the subsequent steps. The main aims of defining the category are : a) Identifying the products and SKUs that will constitute a category b) In turn, the category defines the structure within the category. Category definition should include all products that are either substitutable or closely replaced. Chapter 9 : Category Management 11

12 Process of Category Management Step 2 - Role of a category This step involves developing a strategic plan for the category. Bear in mind the marketplace, the consumer, distributor and supplier of that category. Chapter 9 : Category Management 12

13 Process of Category Management Four common consumer based category roles are : Destination categories consists of leading brands. It should stock a deep and wide assortment since it is the consumers first choice for specific products. A destination category has to deliver superior value to consumer and retailer both. Preferred/ routine categories consist of staple or routine products like soaps, milk, cereal. The retailer has to ensure this category delivers consistent and competitive value to consumer. Chapter 9 : Category Management 13

14 Process of Category Management Occasional/seasonal categories follow cyclical patterns and consist of seasonal products. Eg; mangoes, umbrellas. This category reinforces the target consumers image of the retailer. Convenience category It consists of products that the customer finds convenient to buy from a nearby retailer. Eg; basic supplies - milk or eggs. This category reinforces the target consumers image of the retailer as a one stop convenience store. Chapter 9 : Category Management 14

15 Process of Category Management Sub stages for defining role of a category are : i. Define the objective the retailer wants to achieve with each category. ii. Selecting the category determines how it will be managed by the retailer and suppliers. A cross category analysis is undertaken to define the role of the target category. iii. Resources like budgets, inventory levels, shelf space are allocated to each category. Chapter 9 : Category Management 15

16 Process of Category Management Step 3 - Category Assessment Category is assessed in a cooperative manner based on data collected from suppliers, retailer, consumer and market research. This is a very time consuming step, thus the consumers should be assessed first which will help identify where the profit and margins lie in the category. Chapter 9 : Category Management 16

17 Process of Category Management Step 4 - Category Scorecard/performance measures Performance can be measured a many ways, ranging from simple gross margin, market share, sales, profits to more complex measures. A category scorecard allows success to be measured and recorded across a number of indicators based on their importance. Chapter 9 : Category Management 17

18 Process of Category Management Step 5 - Category Strategy It involves developing marketing strategies for the category in order to maximise category performance. Purpose of this step is to develop strategies that capitalise on category opportunities through creative and efficient use of resources. Selection of specific tactics to execute these strategies. Chapter 9 : Category Management 18

19 Process of Category Management Step 6 develop Category tactics Category receives its own marketing mix, within the parameters of the retail brand identity Identifies the specific actions that will be taken to implement the chosen category strategies. Chapter 9 : Category Management 19

20 Process of Category Management Step 7 - Plan implementation Develop an implementation schedule and timeline. Also assign responsibilities for carrying out the tactics - which tasks have to be done and by whom along with the timeline of each tasks. Chapter 9 : Category Management 20

21 Process of Category Management Step 8 - Category review Conduct an ongoing review and measurement of the category s performance. The scorecard is compared to the planned objectives, the gaps are identified and the plan is modified in order to achieve better results next time. This is a continuous cycle of measurement, evaluation and modification of the plan. Chapter 9 : Category Management 21

22 Process of Category Management Category review Category definition Plan Implementation Category role Category tactics Category assessment Category strategy Category scorecard Chapter 9 : Category Management 22

23 Merits of Category Management Benefits for Consumers The category management concept enables the retailer to provide more value to the consumers through improved assortments and ease of shopping. Decreased costs by increasing the efficiency and effectiveness of the supply chain. These reduced costs are passed onto the consumers who get more value for money. Chapter 9 : Category Management 23

24 Merits of Category Management Benefits for Suppliers Increased sales Improved profit margins Better vendor relations Improved competitive position leading to increased market share Chapter 9 : Category Management 24

25 Merits of Category Management Benefits for Retailers Increased sales Improved profit margins of about 5 percent for the retailer Improves retailer supplier relationships by increased sharing of information Enhanced competitive position Chapter 9 : Category Management 25

26 Demerits of Category Management i. Reorganisation required : It requires a massive amount of reorganisation by the retailer which requires money, time and effort. ii. Suppliers as partners : Most retailers find it very difficult to accept their suppliers as partners and hence will not share information with them. iii. Small suppliers adversely affected : though the category management concept benefits the category captains, smaller suppliers get abused by the larger suppliers. Chapter 9 : Category Management 26

27 Demerits of Category Management iv. Reduced focus on consumer : In order to focus on retailing efficiencies, the retailer ceases to focus on the consumer. v. Reduced variety for consumer : Efficiently selected products may not be exciting to the consumer thereby reducing the variety available for them. vi. Skilled employees for category management are not easily available. Chapter 9 : Category Management 27