If you work in retail, you’ve likely come across the argument that investing in a category management solution* is good for business. Maybe a colleague mentioned it to you in passing, or your boss was looking for ways to improve sales and profit. Either way, how can you know if category management is the answer? One surefire way is to consider how implementing category management will benefit your business.
In short, we’re referencing the benefits of implementing category management best practices.
Implementing category management offers your business two types of advantages. On the one hand, there are your practical benefits, while on the other, the financial ones. Why do we focus on both in this article? Because each feed into the other.
What are the practical benefits of category management?
1. It allows you to improve your relationship with your suppliers
Category management creates a platform for better communication and negotiation between retailers and suppliers.
How? By bringing together your factual data, otherwise known as your performance data and limitations (shelf and floor space), as well as shared category roles and strategies.
Let's look at your product categories as an example.
When considering which product categories to offer your customers in-store, you need to assign specific roles, strategies and tactics to each. You have goals that you want to achieve.
But so do your suppliers.
Your suppliers will have plans for what they want to achieve for the category. By incorporating factual data, you can align with your needs. More importantly, according to your performance data, you can agree on what SKUs will be in the category.
Knowing this can help you drive profitability across the board because you increase the availability of the correct products in the right place at the right time.
2. It makes your data more accessible
Once you have implemented a category management solution in your business - having grouped products into logical categories and managed them as individual business units with their objectives, roles, and strategies - you can define any data associated with the grouping.
You can manage that by integrating multiple data sources into a single source of truth relative to each category.
It enables you to create a focused data processing workflow using a single data source relevant to a specific category, which increases the accessibility, visibility and validity of your data. Furthermore, it enables you and your supplier client to make better business decisions for the benefit of their customers.
If you use a category management solution such as DotActiv, you can automatically transfer your data to other systems.
What's more, you can simplify the category management process. An integrated database allows you to handle interdependencies automatically, which means you can make changes seamlessly.
3. It allows for the better management of your assortments
A common problem you might face as a retailer is to know how many products you can realistically merchandise within your stores where the space available is unknown and sometimes not considered.
There is also the point that even if you know your space constraints, you can still face the issue of deciding which SKUs to list to achieve your objectives for the category within your space available.
Again, this is a problem that category management software can solve.
By bringing together market data, your space constraints relative to each market, and your performance metrics and data that drive the overall objective for a category, you have a better idea of how to present your products.
A category management solution such as DotActiv can understand market data (clusters), space constraints and performance metrics relative to each category. It allows you to understand the performance of the markets by category and the space constraints relative to each.
It also enables you to make better decisions when planning assortments.
How?
By basing any decisions on the performance of each SKU within the category and your available space, you're optimising replenishment, availability, and overall customer satisfaction.
What are the financial benefits of category management?
1. You can improve your buying consistency
Category management enables you to optimise and improve your buying consistency regardless of if you are a retailer or supplier. You can both benefit.
Let's say, for example, you're a retailer, and you want to buy merchandise for your stores.
When doing that, you need to consider how long it might take to sell that stock to estimate when you would need to purchase more to restock your shelves.
At the same time, you can use category management to understand your days of supply at a category level instead of an individual SKU level.
Doing so allows you to buy stock for the entire category at more or less the same time. As pointed out earlier in this article, that improves your consistency. It also helps you manage any costs associated with purchasing the required stock.
In turn, it enhances availability for your customer, which improves the overall shopping experience and entices them to purchase from you again and again.
2. You can reduce unnecessary costs around data errors
When working with data, it is necessary and critical to know your data source to understand whether or not it is accurate and trustworthy.
When extracting and transforming data for analysis, the data can become corrupted or slip through the cracks, and you could miss it when the time comes for you to analyse it.
In this scenario, decisions made based on incorrect data can mean lost revenue and a poor experience for your customers.
By combining these data sources into a single source of truth and organising products into logical categories, you can draw and analyse data specific to a grouping to make business decisions that can be trusted and executed with confidence.
It also reduces the cost of lost sales and customer dissatisfaction.
3. You can meet your category objectives with supplier collaboration
By implementing category management, you can collaborate with your suppliers on the shared objectives of any category relative to either party, whether it's increasing revenue or launching a new product range.
By collaborating, you can understand the drivers of the objectives for the category and negotiate accordingly.
Consider the following: You're a retailer, and you want to increase the bottom line of Category X. Meanwhile, your supplier wants to increase the visibility of their products within your store to gain mindshare.
What do you do?
In this scenario, you could offer the supplier a higher percentage of the available space in exchange for a rebate or lower cost price of the products listed in the category.
This way, your supplier gets increased visibility by receiving a higher percentage of the available space, and you get a higher return on investment due to the decreased cost of the SKUs purchased or a rebate from the supplier.
Conclusion
We’ve covered only a handful of the potential practical and financial benefits of implementing category management in your business. Each has the potential to increase your sales, profits, supplier/retailer collaboration, and the overall satisfaction of your customers.
The benefits far outweigh the costs of implementation and the resources required, and everybody - from retailers to suppliers - should consider it.
Looking for advice or need a category management solution that can help you improve your business? Why not book a complimentary consultation with a DotActiv expert here to hear how we can help you with these goals and more? You can also browse our software and service options on our online store here.
*This article was updated on 18 January 2023.
