Your success as a retailer hinges on doing many different things right. It's a delicate balance because if you get something wrong - even one thing - you'll have a business that is not performing as it should. Take, for example, your category hierarchy. Get this wrong, and you will undoubtedly suffer the consequences.
What type of consequences? We unpacked them in a previous article, which you can read here. One consequence is the fallout that comes with not catering to the needs of your customers. The opposite is thus also true - a well-built category hierarchy can help your retail business. But how?
About the contributors
Almaré Campher joined DotActiv in mid-2020 as a space planner on the Food Lover’s Market account. Before joining the team, she worked as a space planner for various firms and retailers for a number of years.
Esma Janse van Rensburg joined DotActiv in 2019 as a space planner. She worked on a previous account before joining the Food Lover’s Market team in 2020. She has a Bsc Consumer Science from the North-West University.
Preeshen Padayachee joined DotActiv in 2019 as a space planner, working on the Food Lover’s Market account from Johannesburg. He has a BCom in Business Management from the University of South Africa.
What is a category hierarchy?
Before we get into the heart of the article and explain how a well-built category hierarchy works, it’s worth looking at what it is. If you already know what it is, you’re welcome to skip to the next section.
So what is a category hierarchy?
In plain terms, it is a breakdown of the different categories or product groupings that fall under a specific department. You can break any group into its subcategories, segments and subsegments. That's why you might hear many refer to it as product classification: the organisation of products based on characteristics or a set of features.
A well-thought-out category hierarchy also considers how customers shop a category - your consumer decision tree or CDT. For example, if you want your customers to find a product on the shelf, you then need to consider how they shop the category. Do they expect to find a product at eye level or near the beginning of the aisle?
As we mentioned in our articles on mistakes made, you must consider the customer journey in-store. That begins when they walk into your store and only ends after they pay. In doing so, you can create an enjoyable customer experience, which we’ll explain in more detail in the next section.
What are the benefits of having a well-thought-out category hierarchy?
There are many different benefits of having a well-structured category hierarchy. For the sake of this article, we’ve split each into a few functions associated with category management. To balance each out, we’re also looking at what a poorly constructed hierarchy would mean for you as a retailer.
1. It helps with accurate reporting
The first benefit of a well-built hierarchy is that it can help you with accurate reporting.
How?
You can analyse and run accurate reports, which can help your buyers to make better ranging and category decisions. For example, with the right data at hand, you can decide what products to derange and which to keep.
More importantly, a well-thought-out hierarchy gives structure to your analysis. That’s because you can analyse your category according to its subcategories, segments and subsegments. Want to know how the performance of a specific product within your category? If it’s well structured, you should not have any issue with first finding it and then reporting on it.
As for what would happen to your reporting if you had a poorly constructed hierarchy, that should be obvious to understand.
For one, you’ll end up placing products in the wrong categories. You might even find these products in the wrong position on the shelf. As a result, you’ll have inaccurate reporting and analysis. That could also lead to worse problems, like deranging the incorrect products, which could cause irreparable damage to the category.
2. It can help with your ranging/assortment planning decisions
We touched on it briefly above. Alongside accurate reporting is the point that a well-built hierarchy can help you with any ranging decisions you need to make.
For example, it can show you if a subcategory has too many or too few listed SKUs. That means that it can also help you to learn about any gaps. Have you missed an opportunity in one of your subcategories? If yes, you can fill the gap by introducing new products or innovations.
You could even approach one of your suppliers to ask if they can help.
It also allows you to be consistent and offer the same products across your stores, which improves any shopping experience.
If we were to turn that around and consider the consequences of a poorly constructed hierarchy, it would be to look at how you usually do ranging.
You usually begin your ranging at a category level. Thus, if your hierarchy is not solid, you will struggle to decide on what to range or derange. You might end up comparing the sales of incorrect products against each other. That means you might de-list the last product in a subcategory without listing a product to take its place.
3. It can positively influence your planogramming efforts
If you are looking to set up a planogram that performs, data is one of the primary ingredients. So too is a hierarchy. After all, a hierarchy can provide you with the correct structure and a logical product flow.
Besides that, you can also use it to determine which products need more or fewer facings on your shelf.
Let’s say, for example, you want to know which items deserve more space on the shelf. By considering the data of the products in your hierarchy, you can get a good understanding.
This also points back to the point we made earlier about ensuring you have made the correct assortment decisions. That’s because of the interdependent nature of category management, where everything relies on each other. By having the correct products in your range, you can offer the items shoppers want. When planogramming, you can ensure that the products get the space they deserve.
The opposite is also true. By not setting up your category hierarchy or building it half-heartedly, you will find the wrong SKUs on the shelf. Or too many facings for a product that is not selling as expected.
4. It improves the overall shopping experience
Throughout this article, we have touched on the benefits of having a solid category hierarchy for you as a retailer. Of course, it’s not only for your benefit.
A well-built category hierarchy also has a direct impact on the overall shopping experience of the shopper who visits your store.
For example, when someone enters your store on their weekly grocery shop, list in hand, they can find what they need easily. You can also use various merchandising strategies to improve the chances of impulse buys and increase the basket sizes of your customers.
If you can ensure that your customers leave happy and satisfied, you can expect them to return. That means more money in your pocket.
There is also the point that you can ensure that the shelves they see are neat and there are no gaps. Doing so puts the idea in the shopper's mind - even subconsciously - that you have enough stock to meet their needs.
Fail to build out your shelves from a planogram that uses a sound hierarchy and the result will be visible. Products will not be in the right place on the shelves, or even in your store. That means a shopping trip that should take a half-hour at most, for example, could take longer.
That’s if shoppers are happy to spend that extra time searching for products. Don’t be surprised if you find them abandoning their shopping baskets mid-shop.
Conclusion
If you want to reap the benefits of your category hierarchies, you need to build ones that make sense to your customers and how they shop your store. Do that and you’ll soon become known as a store that is worth revisiting.
Need help setting up category hierarchies for your stores? You can book a complimentary custom exploratory consultation with us here or visit our online store.
