Category management, as a process, is vital for all retailers to consider. That’s because when implemented correctly, it can provide your customers with what they want, when they want it and how they want it. It’s ultimately the process to please your customers and bring them back to your store.
What we haven’t done yet is have a look at the category management process as a whole. While there is debate over the number of steps that are involved - some say as many as eight while others peg it at five, at DotActiv, we follow a six-step process.
1. Define your categories
The first step in thecategory management process is to define your category.
How do you do that? Simply put, it comes down to putting yourself in your customer's’ shoes and looking at how they perceive a particular category. Another way to define your category is to look at it and attempt to figure out the customer need that it would satisfy.
Just to point it out here, defining your category is one of the hardest and most misunderstood steps of the whole category management process.
That said, there is a valid reason behind doing it. It’s purpose is to help you to break your products and services down into smaller (and thus more manageable) groups. This category segmentation is also crucial since in doing it, you can develop what is known as a consumer decision tree.
The consumer decision tree (CDT) is defined as “a graphical record that assists retailers to better understand consumer buying habits and the decision-making processes followed by individuals while shopping a Category”. You can also called it a “flow chart” since it charts the order in which your customers make their purchasing decision.
For example, when making a decision around purchasing a cold beverage, your customer would look at price, factor in who they are buying it for (themselves or others) as well as the occasion. They’d also look at the packaging (size and UOM) as well as the actual product. Do they want a carbonated or non-carbonated drink? What flavor do they want?
What makes a CDT even more challenging to develop is that a Category (cold soft drinks in this case) can have more than one. That’s because of consumer behaviour and the fact that no two shoppers are alike. For example, one customer might be driven by convenience and functionality. They would shop completely differently to another customer who is price sensitive.
2. Category role
Once you have defined your category, it’s important to determine its role. The reasoning for this is simple: the category role you select will determine the overall purpose of the category which means that most of your tactics will then support this high-level purpose.
There are four consumer-based category roles from which you can choose:
Destination: This is when a retailer wants to be the primary category provider for a particular category and thus has a good 90% market share if not more. They also aim to deliver consistently and offer superior value so that customers don’t mind going out of their way to shop there. The idea with this category role is that shoppers will visit the store because of this destination category.
Preferred: As the name indicates, this retailer is usually the preferred category provider. They also have a fairly broad range and cover close to 90% of the market. Since most stores sell the same items, this retailer needs to ensure their service is consistent and their prices competitive.
Occasional or Seasonal: This is a major category provider and has a timely range, meaning they stock products that are not purchased on a regular basis. For example, by season, as the name suggests. Raincoats and Umbrellas in winter or Swimwear in summer.
Convenience: As the name suggests, this is for one-stop shopping that is both convenient to your customer and fast too. That means the products are slightly higher in price too since you pay for the convenient location.
3. Insight Generation
Insight generation, the third step in the category management process, relies on customer research, sales data and in-depth analysis. Simply having this type of information at your fingertips is a win for any retailer.
The insight that you gather also drives the next step - strategic and tactical planning. Before we get to that, it’s important to uncover the different ways you can gather insight. There are generally three ways: Market Assessment, Consumer Assessment, and Category Assessment.
Market Assessment: Essentially, you want to know how your products are performing within your target market. Such an assessment includes looking at how you are performing when compared to your competitors among other things. After doing this, you’ll have a better understanding of your market.
Consumer Assessment: In understanding your customer data, you’re able to better understand the purchasing behaviour of your customers. In so doing, you’re also able to find out if they are more loyal to certain brands or if they are convenience customers. As you’ll gather, this assessment is all about getting to know your customers better and also looking at how they understand and perceive a category.
Category Assessment: By doing a category assessment, you’re essentially analysing the sub-categories and segments of your categories with respect to your sales, profits, returns and so on. During such an assessment, you can also look at the opportunities to improve your category. These opportunities, or tactics can take the form of your product assortment, your pricing, placement or merchandising, or promotion.
4. Strategic and Tactical Planning
Having assessed your category, it’s time to look at a few strategies to deliver on your category role.
There are six different merchandising strategies that you can make use of:
Traffic building: This is best used for your Destination and Seasonal categories since it’s goal is to get customers into the store to buy. In order for the store to be a success, the store must always stock it’s top-performing SKUs.
Transaction building: This is best used for your Destination, Routine, or Seasonal categories. The goal here is to increase the customers’ average spend within the category. To do that, it’s worth considering promotions, which encourage buying more.
Profit Generating: This strategy is best used for your Routine, Seasonal, or Convenience categories. The point is for you to increase the sale of high margin products. That can be done by merchandising the category in a high traffic area.
Turf Defending: Otherwise known as super traffic building, this strategy is best used for your Destination categories. As the name suggests, it’s done to protect market share and turnover against competition. When properly implemented, it can create a positive price image.
Excitement Creating: Best used for your Destination and Seasonal categories, this strategy aims to meet your customers needs by offering new and innovative products. Success can be found in discounting prices lower than the market when there is limited stock. This is in an effort to create excitement.
Image Enhancing: This strategy is best used for your Convenience categories as it’s all about enhancing a retailer’s image. A good promotional mix can help here. Mind you; the method that is used does depending on the retailer.
In order to bring the above strategies to life, you will need a category management tool that will help you develop your strategy supporting tactics.
5. Initiative Development
The penultimate step is all about assessing the cost of your plan against the benefits. Once you’ve done that, it’s simply a case of implementation.
Of course, that’s simpler said than done. To implement any category management plan that you have, and to get it done right, you need to have buy-in from all parties. That includes implementing a schedule around how your plan will be executed as well as securing the resources you need to do this. Why? Picture this: As a retailer, you’ve followed all the previous steps in the category management process perfectly but then fail to implement your pan. What is the point of having done this?
The overall success of your category management plan relies on how well you implement it.
6. Plan Launch
This is the last step in the category management process and can easily be included in with the above step. That’s because this is where all the hard work pays off. To get it right, you need to ensure that you roll out your plan according to that schedule that you’ve created in the previous step.
It is at this stage where the planogram has been handed over so that you can re-merchandise your stores accordingly. Just to note, when handing over the planogram, and before implementation, you must ensure that everything is accurate. That includes the planogram having the right images, the right fixtures, and so on.
It’s not the merchandisers responsibility so much as it’s yours to ensure that everything is accurate.
Bonus: Plan your category review
While a category review is not an official step in the category management process, it is highly recommended. It’s also recommended that you do it throughout the process. It can’t be an afterthought.
A typical review has a five-step process for you to follow, namely monitor, measure make changes, maintain, and move forward. Each step should be self-explanatory. You need to monitor your category to ensure it is performing adequately; measure the performance of your category against your category management plan, and if any changes are needed, make them.
On the other hand, if your category is performing as it should, you need to look at what you’re doing so that you can maintain and re-apply it. Regardless of whether you make changes or not, you need to move forward. And in moving forward, that means going back to monitoring your category.
Why? A category review should always be an ongoing exercise. After all, it’s a key indicator of how successful your category is.
If you’re interested in doing a category review, but are unsure of where to start, this blog piece is worth reading.
The category management process is not a short or simply exercise to complete. It takes a lot of time and dedication. That’s the way it should be though. After all, anything that’s worth doing takes time.