Category Management

Asst Prof - George.K.J

Objectives

What is category management

• What category management can do for
your store, your buying and your
customer
• How to build a category, the rules
• How to use the information to grow your
business and increase customer
satisfaction
The Merchandise Hierarchy

Store

Department
Category

Sub Category

Item

Sku’s
What Is Required

Sales should be captured at the SKU

level
• Some items are replenished at the SKU
level (basics)
• Everything else is done at the category
level (planning & analysis)
Category Management

Category management is the process by

which we manage our business at the
category level to deliver better product,
pricing and service to our Customers
• First and foremost category
management is Customer focused
Category Definition

A category is a group or assortment of merchandise

that the Customer finds interchangeable Would
a Customer who was looking for a dress for work
and not finding one, settle for a bathing suit?
Category
A distinct, manageable group of products/services
that consumers perceive to be interrelated and/or
substitutable in meeting a consumer’s needs.
Category Management
The process of managing categories as strategic
business units, producing enhanced business
results i.e. sales and profits with a focus on
delivering consumer value.
Charter for Change

To
From
Pull
Push
Business Team
Salesperson
Account Management
Buyer/Seller
Cost to Serve
Cost Averaging
Pay for Performance
Deals
Profit Drivers
Sales Drivers
Charter for Change

From To

Data Protection Data Sharing

Data Knowledge

Shelf Management Assortment Management

Win/Lose Win/Win
Elements

• Manage the category as a strategic business unit

• Develop strategic category plans based on
category goals, competitors and market
conditions
• Determine price, merchandising, promotion and
product mix
• Collaborate with suppliers
Process Activities

Category Definition

Category Role

Category Assessment

Category Scorecard

Category Strategies

Category Tactics

Plan Implementation
 Category Definition

• What products are in a category?

• How will categories be grouped?
Sub Segment
Segment Sub Segment
Sub Category
Sub Segment
Segment
Sub Segment
Category Sub Segment
Segment
Sub Segment
Sub Category
Sub Segment
Segment Sub Segment
Category Role
• Destination
To be the primary category provider and help define the retailer as the store
of choice by delivering consistent, superior products.
Determines where I go to shop.
• Routine
To be one of the preferred category providers by delivering consistent,
competitive value products.
Once at the destination, fills up the basket.
• Occasional/Seasonal
To be a major category provider, help reinforce the retailer as the store of
choice by delivering frequent, competitive consumer value.
Purchased as need arises.
• Convenience
To be a category provider and help reinforce the retailer as the store of
choice by delivering good consumer value.
Not worth a special trip elsewhere
DESTINATION Category

• Helps define retailer as “ Store of choice”

Constitutes major part of customer planned
purchase
These product groups carry
“Best Range at Best Prices”
• Implications:-
• High Traffic, Exposure and Space allocation
• Promoted at high frequency
• Lead in share, sales, consumer satisfaction and
service level.
• Alliance with Trading partners
ROUTINE Category

Helps develop Retailer as “store of Choice”

Customers buy these products as a matter of
routine
These product groups carry
“Competitive Range at Best Prices”
Implications:-
• Average location with high frequency
• Promoted with average frequency
• Requires preferred Suppliers
• Primary role in delivering profit and cash flow.
CONVENIENCE Category

Customer buys these products from a nearby

retailer rather than a distant retailer offering better
value
These product groups carry
“Select Range at Good Prices”
Implications:-
• Enhance margin and Profit generation
• Available space location.
• Low level of promotional activity
Seasonal / Occasional Category

Customer buy these products infrequently or seasonally.

Seasonal category can become a “ Destination Category”
during the season.
These product groups carry .
“Best Range at Best Prices”
Implications:-
• Timely variety of major Brands and Sku’s.
• secondary role in providing Profit, cash flow
and ROI.
• High traffic and average space allocation.
• Seasonal / timely promotional activities
SUB GROUP ROLES

• TRAFFIC BUILDER

• PROFIT GENERATOR

• IMPULSE

• IMAGE CREATOR
TRAFFIC BUILDER
• High share in the product group

• Frequently Purchased

• High % of sales

• Higher Turns

PROFIT GENERATOR
• Higher gross margins
IMPULSE
• Customers are not brand conscious
• Unplanned purchase
• Visibility / Promotion driven
• Stock turns are high
• Need to be promoted heavily
IMAGE CREATOR
• Specialty category
• Caters to a niche segment
• Highly promoted
• Gives higher margins
 Develop Tactics & the Business Plan-How do
Category Strategies Translate into Tactics and the
Business Plan?
Role (Objective) Possible Goals
Above “fair share” of Market
Below “Average” Handling &
Warehouse Cost
Destination Above Projected Accounted
growth
Average ROi
Fair Share” of Market
Fair Share” of Market Growth
Routine Below “Average” Handling &
warehouse costs
Higher than average ROi
Above “fair share" of market at
peak consumption periods
Higher than “Average” service
Seasonal/ level during peak periods
Occasional Below average operating
Expense during non
peak periods
• Contribute above “fair share”
of profit
Convenience • Contribute above “fair share”
of ROi
Possible Strategies Possible Tactics
Merchandising Feature & Display
Attract new customers 52 weeks a year
Pricing: Top 10 SKUs below
Increase # of trips
Reduce handling costs
lowest competitor everyday
Shelving: Prominent aisle location
Reduce holding costs Selection: Maximum Variety vs.
Market
Merchandising: Feature & Display
Increase % of trips with 26 weeks a year
purchase Pricing: Top 20 SKUs equal to
lowest competitors everyday
Increase Rs/Purchase Shelving: Section large enough for
Reduce requisition costs zero OOS
Reduce handling costs Selection: Equal Variety versus
Market
Merchandising: Prominent Feature
& display for key weeks
Attract new shoppers
Increase % trips with Pricing: Feature pricing lowest,
shelf slightly higher
Category purchase
Reduce holding costs
Shelving: Minimum needed space
Selection: Large Variety for
impulse, reduced balanced of year
Increase $/Purchase Merchandising: Available Space
Reduce Administrative Pricing: Non-inflammatory
costs Shelving: Minimum space required
Selection: Most popular SKUs only
Reduce Holding Costs
ADVANTAGES

• Helps to decide on the range which we carry

• The discounting of a category

• Promotions of the category

• Decide the no. of players in a sub group

• Placement of category in the store

Rationalization Options

Maintain : No change to current assortment

Increase : Increase the number of SKU’s in the
category, sub-category and segment
Decrease : The no. of sku’s in the category,
subcategory and segment.
Swap/Exchange : Alter the mix of SKUs by replacing
existing SKUs with new SKUs
Tailor/clustering : Tailor the assortment by store or
clusters of stores
Private label : Develop, abandon or expand on private
label representation within the category, sub-category
and segment.
 Category Strategy Category Strategy Characteristics

Traffic Building High Share Frequently Purchased, High % of Sales

Transaction Building Higher Ring-up, Impulse Purchasing

Profit Contribution Higher Gross Margin, Higher Turns

Cash Generating Higher Turns, Frequently Purchased

Excitement Creating Impulse, Lifestyle-Oriented, Seasonal

Turf Defending Used by Retailers to Draw Traditional

Customer Base

Image Creating Frequently Purchased, Highly Promoted

Impulse, Unique Items, Seasonal
Rules

Customers define category structure

• Use Department, Category, (Subcategory)
• No more than 10 departments per store
• No more than 10 categories per
department
• No more than 10 subcategories per
category
Benefits of Category Management

“Customers vote with their wallets”, we

can summarize the votes in a logical,
easy to understand way
• Tracking our business by department
does not tell us enough
• Tracking our business by SKU does not
tell us much beyond our top best sellers
and our worst sellers, it ignores the
majority of our business
Benefits of Category Management

• Proper categories make store

placement easier and shopping easier
for Customers
• We can also promote, discount, clear by
category
• Category expansion/extension becomes
easier to justify more likely to succeed
Category management requires

Proper identification of categories

(names)
• Display at the category level
• Planning at the category level
• Open to Buy at the category level
• Reporting at the category level
• Price analysis at the category level
How to create categories

Example – Grocery Store

• Department = Health & Beauty
• Categories
– Cosmetics / Treatment
– Cosmetics / Color / Fragrance
– Vitamins
– Oral care
– Hair care
– OTC
– First Aid
Another

Example – Department Store

• Department = Men’s Clothing
• Categories
– Dress pants
– Casual Pants
– Shorts
– Dress Shirts
– Casual Shirts
– Accessories
– Underwear
– Outerwear
Display at the category level

If the definition of category is a grouping

or assortment of merchandise that the
customer finds interchangeable, we
must display all merchandise in a
category together
• Some merchandise may require multiple
display areas (i.e. batteries, candy,
impulse items)
Planning at the category level

Merchandise plans must be prepared at

the category level
• Sales, Inventory, Markdowns are the
key numbers for planning and yield an
Open to Buy at the Category level