Your category hierarchy plays a crucial role in your success as a retailer. If you don't spend enough time learning how best to present your products to your customers, you can, quite easily, find your business suffering. That's because you'll end up designing a store that is difficult and frustrating for your customers to shop.
Of course, you can look to prevent any unnecessary mistakes from happening. If you do, you won't need to concern yourself with the inevitable fallout of not considering your customer's needs.
It's worth pointing out that there is no specific order to the severity of these mistakes. Making any one of those listed below can harm your chances of providing an enjoyable shopping experience and increasing your sales.
About the contributors
Anneri Greyling joined DotActiv in 2019 as a space planner, working on various accounts. In 2020, she was promoted to the newly established Software Account Management team where she oversees various software accounts.
Jade Charters joined DotActiv in 2019 as a space planner, creating data-driven planograms for Makro, a wholesaler chain and subsidiary of Massmart that has international ties to Walmart. She has a BConsumer Science Honours degree in Clothing Retail Management.
Runet Kritzinger has been with DotActiv since 2015. She currently manages the Makro Food and Liquor account and is part of DotActiv’s Cross-Functional Management Forum. She has a BSc Consumer Science degree in Business Management.
Suné Oosthuizen joined DotActiv in late 2019 as a space planner. She currently works on the Dis-Chem account in Johannesburg, creating data-driven planograms for the pharmacy retailer. She has a BConsumer Science Honours degree in Clothing Retail Management.
1. You have not looked at or used your retail data
As we have noted in many articles on this blog, you should view your retail data as your lifeblood. That's because it is what allows you to function as a business. After all, without data, you're working blind - you won't know what products to stock because you don't know what your customers buy. You also won't know where on the shelf to place the products you do have in-store.
As for why this might happen, it comes to a few different circumstances.
One thing to remember is it takes time to shift through and import your data into a software system. We're talking about inserting and updating potentially hundreds of fields across many categories and brands.
Now consider a small or medium retailer who either doesn't have the time or resources to complete such an exercise. In such instances, mistakes are bound to happen. But not deliberate mistakes.
On the other hand, you might be a retailer who does use your data, but you don't understand or interpret it correctly. That could come down to not using the correct reports or reporting tools. Again, it's not deliberate.
Then there might be another retailer who doesn't use their data effectively because their business has been functioning efficiently without it. At least they like to believe that. If you look closer, you might see that if they use their data effectively, they can create a category hierarchy that meets the needs of their customers.
For all three circumstances, a good direction to take is through education. By educating yourself on how to work with and understand your data, you’ll be more competitive. Also, don’t be afraid of your retail data.
It also means you can start building categories hierarchies that reflect how your customers shop in-store.
When using data to build a hierarchy, it's worth evaluating how you classify your products. And understanding the naming conventions that you use. From there, you can look at how other retailers might be grouping the same products to gather information on how customers shop a category.
2. You have not thought about the in-store customer journey
As soon as a shopper walks into your store, they've begun their journey to find the products they need. It's up to you as the retailer (or supplier) to ensure that they do and have a good experience finding those products.
There are plenty of ways to help them, from the atmospherics you choose in-store to the advertising banners you use and even the shelf talkers you place in your aisles.
Another way is to set up your category hierarchies. That involves building out a consumer decision tree and setting up your shelves (and store) in a way that matches how your customers shop.
Of course, this is where mistakes can happen. The mistake is that there isn't enough depth to a category hierarchy.
For example, it might flow from Department into Category and then into one more branch such as Sub-category. However, after that, there isn't any more information. The result is an unoptimised category that doesn't match how customers shop it.
As for why this happens, it could be due to a few factors. For one, setting up a category hierarchy is time-consuming. The classifications can become complicated and confusing. That's true if you haven't had much experience with it or are unsure of how to classify your products. Or if you don't know your products well enough.
Another reason could be that you don't merchandise further than Sub-category in-store. In such instances, you might want to brand block instead of diving into Segment, Sub-segment and so on. For large retailers, such a strategy could work.
However, there is also the danger that it won't. By not mapping out your category hierarchy, you could misinterpret the needs of your customers. What's more, even if you have the products that your customers want, they'll struggle to find them.
So how far in-depth should you go? While it does depend on you and can differ for each category, a standard hierarchy should include the following: Category - Sub-category - Segment - Sub-segment - Brand.
You can choose to go further if you wish. What is critical is to remember that this is about your customer. When setting up your hierarchy, consider every factor that could influence the decision-making process of your customer.
3. You are not following your chosen role for the category
Every category in your store has a role. Usually allocated by yourself as the retailer, it determines the percentage of market coverage required to fulfil it.
For example, if you give a category a Destination Role, you must stock the appropriate range of merchandise. You'd also need to position your store as the primary category provider and store of choice.
More to the point, your chosen category roles help you prioritise your categories and their importance in your business.
Of course, that doesn't mean that mistakes can happen. You could anticipate the role of a category incorrectly. That's true if individuals do not know to allocate the roles correctly.
They might also be under the impression that a certain category holds a specific role and not get clarification or do the necessary research to confirm their beliefs. While improbable for some retailers with strict protocols, it's possible for others.
There may also be the case where an individual allocates a role and continues to pursue it without proper consultation or confirmation. The result is major discrepancies further along the line as any assigned strategies could also be wrong.
Fixing such a mistake involves doing proper research to confirm the initial belief of the role. That would include allocating a role based on your current knowledge and beliefs. It would also mean drilling down and evaluating the requirements for the chosen role.
For example, it's worth looking at your product offering within the category. It's also critical to determine the performance of the category in comparison to others. And then, when looking at your hierarchy, you must not forget to focus on customer behaviour to understand how they shop the category. Do they see you as the store of choice for the category? If not, you may need to rethink your chosen role.
There should be no stigma to changing a role if it's not correct. After all, the role you choose defines how you'll use a category to achieve your business goals and can either help or hinder your success.
4. You have not matched your strategies to your category role
While your chosen roles play a critical part in helping you to position your categories in-store, you can't hope to achieve them with a detailed strategy.
The strategy you choose helps you to accomplish the role and possibly grow the category and its role. Strategies enhance the strengths of a product grouping by suggesting an overall approach to achieve the required role.
They also help you resist category threats and create opportunities for your segments.
For example, you have frequent promotions on your house brands in the Cereals category. The goal is to raise awareness of the category, which has a Routine role, in the hopes of changing its role to Destination.
In this instance, you would need to adapt your pricing strategies to support the intended role. You would also need to adapt your merchandising strategy to match. If your strategy doesn't match the current role (Routine in this example) or the intended role (Destination), your presentation on the shelf will be incorrect. What's more, it will negatively affect the sales and profitability of the category.
Unfortunately, it's an easy mistake to not match your strategies to the category and its chosen role.
As for how you can prevent this, a good starting point is to ensure that you allocate the correct role. That at least limits any potential problems. Once you've confirmed the role, you can evaluate your category and drill down into your product hierarchy to analyse and compare the different sections within. Doing so allows you to identify which products are selling and which are not.
Another solution is to research your role and consider any associated strategies. Then you can use your findings and compare them to the category and sub-categories to see if you're following similar strategies or not.
5. You have not done enough competitor or customer research
It should be a given: you can never underestimate competitor and/or customer research. That's regardless of the industry you work in.
Competitor research allows you to understand who you're up against, be that a direct, indirect or replacement competitor.
Meanwhile, customer research - especially in the context of retail - focuses on helping you understand shoppers "by focusing on exploring their attitudes, needs, motivations and behaviour as they relate to your business", writes CCG's president and CEO, Sandra Gudat. "This ultimately helps you better identify, understand, analyse and retain your customers."
Of course, it's a lot of work and takes time and effort to do any meaningful research. If you're a smaller retailer and don't have the necessary time or resources to complete such an exercise, your business can suffer for it.
On the other hand, because there are so many competitors in the market, there is a surplus of information. And, as soon as you receive any information, you need to act on it, implementing strategies to stay ahead of your competition. That means it's never-ending, so it can become overwhelming to sift through everything.
But the consequences of not doing adequate research will show soon enough. If you fail to do enough competitor research, you’ll struggle to know what’s selling in the market and thus range products that might not be in demand. That has a direct impact on the shopping experience and your bottom line.
You can rely on your suppliers who have access to market data if you can't get hold of any. Shari Waters, a 25+ year veteran of retail, also writes a good piece on conducting competitor analysis as a retailer, laying out the basics.
As for customer research, it’s key that you first understand your industry. Then, define your target market. From there, it's all about researching your customers and where they shop. Also, how they shop a category in your store.
You can gather this information by analysing your retail data, which brings us back to our first point - if you can use your retail data effectively, you can cater to your customers. More importantly, you can set up hierarchies for your categories that match the way your customers shop in your store.
If you want to avoid making mistakes when setting up category hierarchies, you need to be mindful of how your customers shop your store. If you can understand them, you’re that much closer to providing them with the products they want. More importantly, you can present it to them in a way that makes it easier to shop your store.
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.