What is Category Management?
Depending on who you ask, the specific definition of category management may change slightly. However, everyone agrees that this term refers to managing different product categories rather than focusing on individual items or brands. Category management involves input and strategy from various retailers and manufacturers so that they can deliver better results for their customers.
Category management began in the late 80s/early 90s so that there could be better collaboration between companies to benefit consumers. If each brand kept its data a secret, it would be impossible for everyone to market and sell effectively.
So, let’s align on some common concepts for the industry:
Category management is a shared process between retailers and manufacturers to evaluate and manage categories as strategic business units, developing and monitoring them to produce improved results by focusing on delivering value to the shopper. Usually abbreviated in the industry language as CatMan Process.
A category is a distinct and manageable group of interrelated products that satisfy a common need of the shopper/consumer.
The goal is to optimize the performance of each category by tailoring strategies, assortments, and promotions to meet the specific requirements and preferences of customers.
The main objective of category management is indeed to grow the entire category rather than focusing on individual brands, both retailers and manufacturers encounter several challenges in achieving this common objective, and we will expand about these later. So, what is the main challenge that the industry is facing:
“Achieving customer satisfaction in retail is a formidable challenge. For sustained loyalty and viability, category management must be seamlessly woven into a comprehensive understanding of the shopper. Both retailers and manufacturers hold a pivotal role in enriching people’s lives and fulfilling promises by not only meeting needs but also eliciting emotional experiences in stores. In this context, assortment optimization, along with shelf management and presentation, marks the inception and culmination of the entire Category Management process. The critical questions involve identifying the products that resonate with shoppers, understanding what sparks desire, and ensuring that shoppers encounter a visually appealing presentation of these products.
Chryssa Asmatzi – Category Management Leader Europe
After all we cannot buy what we cannot see, can we?”
The category management concept is widely used in the retail industry and is crucial for:
- Effective inventory management
- Customer satisfaction, and
- Overall business success
Key components of Category Management include
Collaborative Relationships
strategic, long-term relationships among the retailers and manufacturers that will allow the process to be continuous and scalable.
Measuring development
through common alignment on the scorecards and key performance indicators that will provide guidance against the set objectives.
Organizational capabilities
needed to execute the process including the structure, roles, responsibilities and resources available for the process.
Information and Technology
which is the core engine of a successful process to have data driven decisions at the right time and through the proper tools and software.
The 8-step Category Management Process
While each company can manage product categories with unique processes, there are eight steps that brands and retailers can follow to ensure better category management.
It is an 8 (eight) steps process, that will allow both retailers and manufacturers to find the opportunities and capitalize them with specific strategies and tactics according to the category role, potential and business objectives:
- Alignment of the relationship between retailer and manufacturers.
- Define the Category – During this step, you need to set parameters for the category, including sub-categories and consumer behavior.
- Role of the Category – What is the driving purpose of the category? Is it to bring new customers in or to expand your product line?
- Assessment of the Category – Here is where you look at all the data related to the category to anticipate any changes or trends. This step is the most time-consuming.
- Objective – After the category evaluation you identify the main opportunities and prioritize the objectives that will allow you reach your target.
- Category Strategies – Once you determine the category’s role, opportunities and objectives you need to know how you’re going to achieve it. This step lets you figure out how to get from where you are now to where you want to be.
- Tactics – Here is when you improve your sales fundamentals, the 4 “P” of category management: Product, Placement (merchandising), Price and Promotion.
- Implement Your Plan – Now that you have a game plan, you can start putting it into action.
- Review and Assess Your Progress – The only way to ensure that your processes work as efficiently as possible is to review them in action. Look at your data and see how it changes with various techniques.
The tactics
are always the focus of attention while implementing a category management process because of the relevance of these core business areas in the results:
- Assortment Planning: Determining the right mix of products within a category to meet shopper demand and maximize sales.
- Price Management: Setting prices that are competitive and aligned with shopper expectations while still ensuring profitability.
- Promotion Strategy: Developing promotional activities and campaigns to drive sales within each category.
- Shelf Space Optimization: Allocating space on shelves and store layouts based on the performance and demand of products within a category and managing both macro and micro space efficiently.
- Trust and collaboration are the foundations of this process, so a healthy, open, objective and independent Relationship is a must, collaborating with suppliers to ensure a steady supply of high-quality products at competitive prices and continuing alignment on the category objectives.
Importance of Category Management
Category management is there to help your business understand consumer behavior and make better purchasing decisions. Since your profit margins are relatively slim, category management enables you to keep a leaner and more efficient bottom line while improving the shopping experience.
“There are different reasons why today it is more complex to build enhanced experiences in retail than before, but the major one, in my opinion, remains in the shopper behavior and information overload they are experiencing. There is so much going on: online shopping, offline, social media, outdoor screens, banners, pop-up windows etc. Very often a shopper goes into the store while talking on the phone or texting. All of these decrease their attention span and make it even harder for both retailers and manufacturers win a potential shopper.”
Jana Volovika – Category Management Leader Europe
A robust and consistent process implementation will also help you with:
- Increased Sales: By tailoring strategies to each category, retailers can enhance the appeal of products to specific customer segments, leading to increased sales.
- Better Inventory Control: Efficient category management helps in maintaining optimal inventory levels, reducing excess stock, and minimizing stockouts.
- Enhanced Customer Satisfaction: Understanding and meeting customer preferences within each category leads to improved customer satisfaction and loyalty.
- Cost Savings: Negotiating favorable terms with suppliers, optimizing shelf space, and streamlining operations contribute to cost savings.
Our global voice in Category Management
In each region, the specific application of category management will depend on the unique characteristics of the market performance, opportunities and consumer behavior.
In a market with an incredible development of omni-channel activity, with such maturity of the process implementation like China and its local giants, for instance, it is remarkable how they keep including category management as a core part of their day-to-day business operation. So, we asked our experts in the matter, how do local giants in China use category management to improve their financial results across different channels, formats and even online platforms and solutions?
“China retail giants have achieved success in Omni-channel retail through effective category management. Shoppers’ profile, behavior, preference and market trends were carefully analyzed with precise sales and inventory data, they would then optimize product assortment, price and promotion across different channels and platforms through efficient merchandising management to ensure a seamless shopping experience for shoppers and maximizes sales potential.”
Vivian Wong – Category Management Leader Asia
There are examples of category management everywhere you look, and the beauty of the process is that it adapts to the market reality in different regions, for example:
Latin America
In Latin America, grocery retailers often implement category management to optimize the assortment of products such as fresh produce, local staples, and culturally relevant items to cater to the diverse preferences of the population.
North America
In North America, particularly in the United States, category management is extensively used in large retail chains. For example, in the electronics category, retailers might tailor their assortment to include the latest tech trends and negotiate with suppliers for competitive pricing.
Western Europe
In Western Europe, fashion retailers may use category management to align their product assortments with seasonal trends and regional preferences. For instance, winter clothing may have a more prominent place in the assortment in colder climates.
China
In China, e-commerce giants like Alibaba use category management to optimize the online shopping experience. For instance, they may customize their strategies for categories like electronics, beauty products, and health supplements to appeal to the preferences of the Chinese consumer base.
In each region, the specific application of category management will depend on the unique characteristics of the market, trends and consumer behavior.
Finally, Category Management is a Data-Driven Decision Making process, that relies on data analysis to make informed decisions, allowing retailers and brands to respond quickly to market trends and changing consumer behavior.
If you’d like to find out more about the benefits and execution of category management and all the resources and knowledge, we can provide through our CatMan Educational Program, Analytics, Assortment, Shelf Optimization and Spaceman tools, please reach out to your NielsenIQ executive.
Need to revamp your category management strategy?
Get ahead of the competition taking your analysis to the next level.
