Category management

Category management

"Category Management is a retailing concept in which the total range of products sold by a retailer is broken down into discrete groups of similar or related products; these groups are known as product categories. Examples of grocery categories may be : tinned fish, washing detergent, toothpastes, etc.
Each category is then run like a "mini business" (Business Unit) in its own right, with its own set of turnover and/or profitability targets and strategies. An important facet of Category Management is the shift in relationship between retailer and supplier : instead of the traditional adverserial relationship, the relationship moves to one of collaboration, exchange of information and data and joint business building.
The focus of all negotiations is centered around the effects of the turnover of the total category, not just the sales on the individual products therein. Suppliers are expected, indeed in many cases, mandated to only suggest new product introductions, a new planogram or promotional activity if it is expected to have a beneficial effect on the turnover or profit of the total category and be beneficial to the shoppers of that category." [ What is Category Management ?] ]

The concept was initiated, and is still most commonly found in Grocery (Mass merchandising) retailing, but now also found in other retail sectors such as DIY, Cash and Carry, Pharmacy/Drugstore and even Book retailing." [ Category Management in Book Retailing] ]

Definition of Category Management

Category Management lacks a single definition thus leading to some ambiguity even among industry professionals as to its exact function. Three comparative mainstream definitions are as follows:

"Category Management is a process that involves managing product categories as business units and customising them [on a store by store basis] to satisfy customer needs." (Nielsen)" [Nielsen Category Management - Positioning Your Organisation to Win, p9] ]

"The strategic management of product groups through trade partnerships which aims to maximise sales and profit by satisfying consumer and shopper needs" (Institute of Grocery Distribution)" [ IGD definition] ]

" [a] .. marketing strategy in which a full line of products (instead of the individual products or brands) is managed as a strategic business unit (SBU)." (Business Dictionary)" [ Business Dictionary Definition] ]

The Nielsen definition, published in 1992, was a little ahead of its time in that customising product offerings on a store by store basis is logistically difficult and is now not considered a necessary part of Category Management; it is a concept now referred to as micromarketing. Nevertheless, most grocery retailers will segment stores at least by size, and select product assortments accordingly. Wal*Mart's Store of the Community, implemented in North America is one of the few examples of where product offerings are tailored right down to the specific store." [ Store of the Community] ]

Rationale for Category Management

One key reason for the introduction of Category Management was the retailers' desire for suppliers to add value to their (ie the retailer's) business rather than just the supplier's own. For example, in a category containing brands A and B, the situation could arise such that every time brand A promoted its products, the sales of brand B would go down by the amount that brand A would increase, resulting in no net gain for the retailer. The introduction of Category Management imposed the condition that all actions undertaken, such new promotions, new products, re-vamped planogram, introduction of Point of Sale advertising etc. were beneficial to the retailer and the shopper in the store.

A second reason was the realisation that only a finite amount of profit could be milked from price negotiations and that there was more profit to be made in increasing the total level of sales.

A third reason was that the collaboration with the supplier meant that supplier's expertise about the market could be drawn upon, and also that a considerable amount of workload in developing the category could be delegated to the supplier." [ Rationale for Category Management] ]

Definition of a Category

The Nielsen definition of a category, used as the basic definition across the industry is that the products should meet a similar consumer need, or that the products should be inter-related or substitutable." [ Nielsen Definition of a Category] ] The Nielsen definition also includes a proviso that products placed together in the same category should be logistically manageable in store (for example there may be issues in having room-temperature and chilled products together in the same category even though the initial two conditions are met).

However, this definition does not explain how the process often works in practical retailing situations. For example, electric toothbrushes are often placed in a separate "electricals" category with hairdriers and not with manual toothbrushes, even though the Nielsen definition may suggest otherwise. Sometimes demographic considerations over-rule, so luxury chrome toilet brushes could be found in a luxury-bathroom-fittings category, totally separate from the white plastic toilet brushes placed in the household brushes category." [ Practical considerations in category definitions] ] Depending on the size and internal structure of the retailer, different definitions may exist: whereas one retailer may have a tinned tomatoes category, another may consider it just a small sub-segment of a larger tinned vegetables category.

The Category Management 8 Step Process

The industry standard model for Category Management is the 8-step process, or 8-step cycle developed by the Partnering Group." [ The 8-step Category Management process] ] . The eight steps are shown in the diagram on the right; they are :1. Define the Category (ie what products are included/excluded).2. Define the role of the category within the retailer.3. Assess the current performance.4. Set objectives and targets for the category.5. Devise an overall Strategy.6. Devise specific tactics, and 7. Implementation.The eighth step is one of review which takes us back to step 1.

The 8-step process, whilst being very comprehensive and thorough has been criticized for being rather too unwieldy and time-consuming in today's fast-moving sales environment; in one survey only 9% of supplier companies stated they used the full 8-step process." [ 9% of supplier companies admit to 8 step process] ] The current industry trend is for supplier companies to use the standard process as a basis to develop their own more streamlined processes, tailored to their own particular products" [ Trend for Suppliers to develop Streamlined Cat Man processes] ]

Market Research company Nielsen has a similar process based on only 5 steps : Reviewing the Category, Targeting consumers, Planning merchandising, Implementing strategy, Evaluating results.

Category Captains

It is commonplace for one particular supplier into a category to be nominated by the retailer as a Category Captain. The Category Captain will be expected to have the closest and most regular contact with the retailer and will also be expected to invest time, effort, and often financial investment into the strategic development of the category within the retailer.
In return for this, the supplier will gain a more influential voice with the retailer but must be careful never to abuse this or fall foul of any antitrust laws. The Category Captain is often - but not always! - the supplier with the largest turnover in the category. Traditionally the job of Category Captain is given to a brand supplier but in recent times the role has also gone to particularly switched-on Private label suppliers." [ The role of Category Captain] ]
In order to do the job effectively, the supplier may be granted access to a greater wealth of data-sharing, eg more access to an internal sales database such as Walmart's Retail Link

Retail Link

Walmart is the not only the world's largest retailer, it is the world's largest public corporation by revenue, according to the 2007 Fortune Global 500."Walmart corporate size] In 1992, Walmart opened up its sales data to its suppliers and by 1996 extended this by opening it up via the internet site called Retail Link." [ Retail Link opens to suppliers] ]

In 1998, the Walmart central database was second in size only to that of The Pentagon." [Worlds of Food, Place and Provenance in the Food Chain, Kevin Morgan, Terry Marsden and Jonathan Murdoch] ] Walmart suppliers involved in Category Management are expected to be fully conversant with Retail Link and to use it as the main vehicle for their regular retailer:supplier conversations. Access to Retail Link is strictly controlled via passwords and suppliers are limited to view only the areas of the Retail Link database to which they are entitled.

In addition to sales data, Retail Link also has a considerable amount of Logistic data, showing, for example, the product availability on shelf. Suppliers are expected to proactively work to maximise the availability of their products to Walmart shoppers.

In 2001, Walmart's Retail Link stopped selling its data to established Market Research companies such as Nielsen and Information Resources Inc (IRI) who gather sales data from other retailers." [ Walmart stops selling its store data] ] forcing suppliers to work more closely with Retail Link. Market researchers are thus now faced with the task of amalgamating Retail Link with other data sources in order to obtain a picture of the total market.
Other large grocery retailers such as the British [Tesco] supermarket chain and the German-owned [Metro] have their own dedicated internet sites for sharing sales data with suppliers.

Ironically, Sam Walton, the founder of Walmart reputedly never had much time for computers : "Truthfully, I never viewed computers as anything more than necessary overhead" " he said in his 1992 memoirs." [ Sam Walton's view of computers] ]

Government view of Category Management

Most governments, whilst generally tolerating Category Management, have also viewed it with the concern that the increased collaboration could be a potential source of antitrust breaches, such as price fixing. For example the UK Competition Commission" [ Competition Commission] ] has reported on Category Management and raised several issues. (see :" [ Potential Anti-Competition Issues with Category Management] ] ). Whilst in practice, these fears are usually unfounded with many larger retailers having particularly rigid ethical policies in place, occasionally breaches can occur, for example the milk price-fixing probe in Britain in 2007." [ Milk Price Fixing] ]

Category Management Issues


One of the big issues with category management is the assumption that a category plan will be implemented 100% at all stores without issues. In the real world the compliance rate for proper implementation is about 30% to 70%. As a result the true effect of a category plan is not easily assessable. So category decisions are not verifiable. Did the plan fail to deliver on the sales targets because the plan was flawed or was the implementation flawed?

Category Management Association

A Category Management Association has formed with the mission statement : ‘Advancing Professional Standards in Category Management.’ Early in 2003 an informal newsletter began circulating as an anonymous discussion group exchanging ideas and advice. An interview with Progressive Grocer article prompted the formation of a formal organization November 2004. Since that time, the association has blossomed by simple word-of-mouth into a member-driven resource for sharing information and advice. The Resource Directories continue to expand by category and channel. Each of these directories has a matching Discussion Group, some of which are very active and some of which sit empty until someone starts a thread. International Chapters have been added by request, along with university resources, professional coursework listings, new discussion group areas, and a new 'Virtual Convention Center' to allow members to hold small meetings as well as large webcasts. The association seeks to serve the needs of its members and guests, creating 'buckets' for information to be amassed, and creating a 'place' for interaction among peers.


ee also

*Fast moving consumer goods

External links

* [ The Institute of Grocery Distribution]
* [ A.C. Nielsen (sales data)]
* [ IRI (sales data)]
* [ Category Management site with useful "what is.." page]
* [ Walmart Retail Link (requires password and login)]
* [ The Category Management Association]
* [ Retail Intelligence for Key Account Managers (sales personnel)]
* [ Category Management Community Site]
* [ In-Store Implementaton Share Group]

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