Category Management

TABLE OF CONTENTS
                                                                                                                                   What is Category Management?

                                                                                                          What is the ultimate goal of Category

Management?

                                                                                                                  The Six-Step Category Management

Process

1. Category Definition

2. Category Role 

3. Insight Generation

4. Strategic and Tactical Planning

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 5. Initiative Development

6. Plan Launch

                                                                                                                  Category Management Actions To

Consider

 
                                                                                                                                                                

WHAT IS CATEGORY MANAGEMENT?

 

Category Management is the process of organising categories as independent business units, aimed
at producing business results by focusing on delivering value to a customer. Category Management
also aims to provide customers with what they want, where they want it, and when they want it. To
do so, products are grouped into categories according to how they are used, consumed or
purchased. 

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WHAT IS THE ULTIMATE GOAL OF CATEGORY

MANAGEMENT?
 
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 The goal of Category Management is to obtain long-term improvements in the e iciencies of the
retailer, which leads to increased sales, an improved shopping environment, and customer
loyalty. The idea behind Category Management is also pretty straightforward: to manage each
product category in a way that enables maximum consumer appeal while maximising profits. 

As a Category Manager, you learn how to develop the best possible customer proposition by
implementing data-driven assortment planning, having prices that are competitive, promotions
that are attractive, and visually appealing planograms. 

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 CUSTOMER-CENTRIC
CATEGORY MANAGEMENT
 puts the customer at the centre of all decisions
made regarding the following:

   Which products will be purchased

   How they will be grouped (categorised)
   Where they will be displayed and
   How they will be displayed
Other considerations include:

     ▫ the actual product (size, weight, use,

quantity);

     ▫ price;

     ▫ marketing message; and

     ▫ location.

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 WHERE DO YOU COME IN WITH CATEGORY
MANAGEMENT?
As a shelf planner, you need to continually strive to understand the customer
when making decisions regarding a shelf. That's because each aspect has an
impact on the other. For example, the size of your product will impact where you
place the product.

The marketing message may have an impact on the price. However, the consumer
decision making process is at the centre, so the spending power of your customer
will impact which products you keep in store, and where you keep these products.

                                                                                                                                                              
                                  

CATEGORY MANAGEMENT PROCESS

While there is debate over the number of steps that are involved - some say as many as eight while
others peg it at five, at DotActiv, we follow a six-step process. 

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1. CATEGORY DEFINITION

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 The purpose of the category definition step is to
determine the specific SKUs (Stock Keeping
Units) that make up your category. The
appropriate starting point here would be to put
yourself in the shoes of your customers and ask
how they would define the category.

The category definition generally asks what

“consumer need” must you satisfy? The
category fulfils the need and the specific
product fulfils the consumer want.

 Category segmentation
There are various factors that should be taken into consideration before creating the category
hierarchy and consumer decision tree. 

Below is an example of what your consumer would usually consider when purchasing a cold
beverage.

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 That said, it is highly unlikely that there is only one consumer decision tree per category. That's
because there are di erent consumer behaviours based on cultural, personal, physiological and
social factors that exist within a consumer base, and for each of these segments there is a di erent
focus or priority.

For example, your shoppers may be price sensitive, which means price will feature higher on their
consumer decision tree. On the other hand, they may be highly visual, which means packaging and
brand becomes key in their decision-making. Meanwhile, others could be looking for functionality
and convenience. Thus packaging functionality, such as individually wrapped products or the
ability to reseal an opened product may influence their decision.

Also, the segments that exist are likely to vary by category so it's key to understand your consumer
and what's important to them. 

Below is an example to further illustrate our point:

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THE CONSUMER DECISION TREE AND CATEGORY HIERARCHY

A major component in the category definition phase is developing a consumer decision tree. A
consumer decision tree (CDT) is a graphical record that assists retailers to better understand
consumer buying habits and the decision making processes followed by individuals while
shopping a Category.

The order of priority in which customers make their purchasing decisions details the various
product attributes (such as price, flavour, size, and brand). This product knowledge is then
translated into planograms that align to a retail strategy with consumer behaviour

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 For example, the consumer walks into a store, what happens next? Where do they go? What do they
see? What do they buy?

Why use a consumer decision tree?

Consumers are the people who are making the decision at the point of purchase.
They make the ultimate decision as to what goes into the trolley or basket. They
are the ones navigating the shelf and selecting from the range presented.
Therefore, it makes more sense, from a shelf planner point of view to consider a
consumer decision tree when deciding on a shelf-layout.

What is a category hierarchy?

A category hierarchy is the grouping of categories and subcategories into super groups. Assigning a
product to a Sub-Category, Category, Super Group B and finally a Super Group A helps you to better

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 analyse the performance of a product within category and super group.

This leads to better placement and better consumer understanding from a retailer and supplier
level. Your hierarchy is informed by the consumer decision tree.

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2. CATEGORY ROLE
A category role can be classified as the following:

   It positions the category within the portfolio of all of

your categories within your store;
   It helps prioritise the category;
   It defines how you will use the category to achieve
overall business objectives; and
   It helps drive tactical decisions on price, promotion,
product assortment and store location.

CONSUMER-BASED CATEGORY ROLES

There are four main consumer-based category roles that you should know.

They are:

1. Destination category role 

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 This is a category with which the retailer wants to profile himself towards his target consumers and
di erentiate himself from competition. It aims to o er superior value to consumers and define the
retailer as store of choice.

2. Routine category role

This category that aims to provide consistent and competitive value for the consumer’s everyday
needs. This category assists to develop the target consumer’s image of the retailer.

3. Seasonal category role

This category refers to products which are not purchased on a regular basis but occasionally.
Seasonal categories play a secondary role in delivering profit but can be used by a retailer to
di erentiate himself from competition during a certain period of the year.

4. Convenience category role

A convenience category completes the retailer's assortment with products that are not usually
found on a routine shopping list. This category aims to guarantee a one-stop-shopping and plays
an important role in margin enhancement. 

 3. INSIGHT GENERATION

 

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Insight generation primarily involves competitor research, sales data, and in-depth analyses so that
you can make better decisions regarding the layout of a shelf.

When doing so, there are three areas a retailer must look at that will help him to optimize his
categories:

1. Market data: This looks at the products that are  selling well in the retailer's external
market/competitors; 
2. Consumer data: This  looks at the internal market of the retailer, understanding consumer
preferences and behaviour, and analysing product sales; and
3. Category strategy: This  looks at the category definition, category role and the tactical
planning tactics that will be implemented in order to improve the overall category
performance. 

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 The use of this data and advanced analytics will benefit retailers in almost all areas of the business.
It will help to identify gaps between the current and desired state of the category and drive the
strategic and tactical planning decisions. 

For instance, loyalty analysis, which measures purchase frequency or penetration among high-
priority consumer segments, allows you to understand product categories from a consumer
perspective. By measuring consumer “switching” behaviour, you can also identify which SKUs play
a unique role and which are redundant. 

Meanwhile, in using market basket analysis, you can identify key value items by consumer segment.
You can thus set prices based on consumer demand and competitor moves. You can also tailor
o ers and promotions to consumers based on their past behaviours, thereby increasing total basket
profitability and loyalty.

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 4. STRATEGIC AND TACTICAL
PLANNING
 Category strategies

This is the step where strategies are developed to deliver

on the category role. Category role determines the depth
of an assortment; whereas strategies determine the
assortments focus.

Strategies enhance the strengths of the category, focus

on combating category threats, and create opportunities
for the segments. 

The development of category strategies has six basic

drivers:

Tra ic Building; Transaction Building; Profit Generating;

Turf Defending; Excitement Creating; and Image
Enhancing.

 Category tactics

The goal of category tactics is to choose the best action

to achieve a specific strategy based on the role the
category plays. In determining the appropriate tactic,

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 you must review the four basic category roles
(Destination, Routine, Seasonal, and Convenience).

These roles determine how the retailer makes decisions

about the implementation of each tactic.

The tactics used are the 4 Ps : Product Assortment,

Pricing, Promotion and Merchandising Placement.

 5. INITIATIVE DEVELOPMENT & PLAN LAUNCH

During initiative development, you need to assess the cost versus the benefit of the plan before
prioritising the next steps for implementation. 

This step is used to implement the category business plan through a systematic schedule and list of
responsibilities. Implementing category plan as per the objectives laid down is the path to the
success of a merchandising strategy. 

A typical category plan under implementation stage includes: what specific tasks need to be done;
when to do; where to do, and who will do it. 

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 It is vital that you secure commitment to resources for implementation otherwise all the hard work
put into the first few steps will be wasted without the right actions in place.  The plan launch
requires you to create a timeline for rolling out the Category Management plan you've created.

 6. PLAN REVIEW

A Category Review is not necessarily listed as a step
within the Category Management process as it needs to
be completed on an ongoing basis. This step is rather an
ongoing measurement of the progress of the category
plan and is a key indicator of the category's success
which allows you to determine whether or not changes
should be made to the category plan. 

There are five keys steps within the review process,

namely:

1. Monitor 2. Measure 3. Make changes 4. Maintain

5. Move forward.

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THE 7 CATEGORY MANAGEMENT ACTIONS
 

ASSORTMENT PLANNING
Having a strong assortment planning strategy is
a big part of Category Management and is
focussed on making the right products available
in the right stores and at the right time. 

Opposite is an example of some of the metrics

(taken from DotActiv Lite) that retail
professionals use to create attractive
assortments. 

For the selection process, assortment planning

so ware will use a set of rules to apply.

Rules may include : Sales of a Product, Units

Sold, Time on Shelf, External Sales Rank, House
Brand, Top Brands, Colour or Flavour, and
Profitability.

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 This selection process will help you select those
products which are performing well internally
and externally, and develop Category
Management strategies that will better reach the
target market/shoppers.

FLOOR SPACE PLANNING

A floor plan consists of a collection of
planograms set out in a logical order, for a store
or various stores so as to maximise the utility of
the available floor space. Floor planners use
specialised floor planning so ware to create
heat-mapped floor plans. This helps you to
optimise shopper tra ic and to reduce
congestion during peak hours.

Having products displayed in the same

locations in all chains creates brand
consistency; which is beneficial to you if you
have more than one store in a region.

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 Customers are more likely to return to a store
when they know where to find the product that
they are looking for regardless of which store
they are visiting.

SPACE ALLOCATION AND MANAGEMENT

By taking into account the number of days it takes for a particular product to sell out, you can
balance the space on the shelf to the sales of each product. This will help you to maximise your
sales per square metre.

If the product takes longer to run out, give it less space and allocate that space to a product that
sells out faster. In this way you can increase your sales and profits.

VISUAL MERCHANDISING
(OPTIMIZING DISPLAY EFFICIENCY)
A planogram is a diagram, drawing or visual
representation that indicates how and where
products should be placed on

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 shelves. Generating planograms that display
products on shelf in a visually appealing, logical
and convenient way will help to attract and
retain more shoppers.

Space planners use planograms to create logical

product flows so that shoppers can easily
navigate around the store and find what they
need.

Planograms also make shelf replenishment

easier for store personnel who can at any time
refer to the planogram which will indicate to
them how products should be merchandised.
Planograms are a valuable tool for retail
executives who have more control over their
merchandising strategy and how shelves in their
stores are being packed.

PRICE PLANNING
With the use of e ective Category Management business intelligence tools, you are able to decide
on the best possible pricing.

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 By analysing data to calculate things like price elasticity, you can price your products to optimise for
customer satisfaction and profit. 

INVENTORY MANAGEMENT (TO

AVOID OUT OF STOCK)
Planograms are used to determine space
allocation and measure how fast a product
moves on a shelf. This will help determine the
amount of SKUs you must order to ensure
consistency of the days of supply for the
products on a shelf. 

An e ective planogram will make the shelf

replenishment cycle much easier, resulting in
decreased stock holding, reduced out of stocks,
optimised stock rotation and increased
inventory control.  

For example, by using a product minimum

display quantity, you can control running out of

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 stock and the timing to place new orders.

PROMOTION PLANNING
Promotions are a good way to o er new and known products at discounted prices.

Shoppers see these promotions on gondola ends, shelf hotspots and other convenient areas.     
               
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