3 reasons to develop category understanding
- There’s a limit to how long the entrepreneurial “gut feeling” can help a company grow. At some point switching to data-driven decision making will be the key to unlocking opportunities. The next question is usually “what data?” Essentially, it’s the data relating to your category, outlined in the section.
- The most important information you can gather about your category dynamics and understanding the market you operate in lies in the data relating to the value, volume, and item.
- A firm understanding of category performance is the foundation of successful negotiations with retailers — it will help you get listed and increase shelf space.
The info you need to master your category
For non-data analysts, the idea of working with data can be intimidating, but it doesn’t have to be.
An easy principle to adopt when gathering category information is the 5 W’s and 1 H.
W1: Where is your category sold most, where can it possibly sell better?
In other words, how is the category spread?
You first find out where your product’s category is readily available to consumers versus low-service areas, and then decide where you want to be — there are advantages and disadvantages to either choice.
In areas with high category availability, you don’t need to introduce your target audience to the concept of your category or develop that need. On the other hand, the category might be saturated, and competition for your product could be high — so you need to find your distinct proposition / product advantage to stand out.
By aiming for low-density areas, you have the advantage of being one of few in terms of choices. However, depending on the novelty of your product concept, you will need to identify ways of making your product relevant to the target audience.
The next level is to go granular and find out the numeric and weighted distribution of your category. From there you can find your top-performing, or “golden,” stores.
W2: Who are your competitors, and which one should you benchmark against?
No matter where you are, pricing is an important factor in purchase decisions and brand image. It’s best to start by identifying competitor brands that fall within the same price range, and then those who are in higher and lower ranges. From that vantage point, you can assess where you fall in the spectrum of premium to mass prices, and if that matches your brand positioning.
Next, you pick a brand that would be best for benchmarking your product’s performance against — important performance metrics include value and volume sales, distribution, sales turnovers, and best performing SKUs.
Benchmarking is an important step for measuring your product’s performance over time. During a category review, having a good grasp of what your competitors are doing will help you set a winning proposition to your key retailers by highlighting your best performing differentiators.
W3: What is your ideal price point?
Pricing your product is a decision you will have to make continually. There isn’t one right way to price — in fact, it is best to have a mix of strategies that:
- Allow for flexibility according to environmental factors
- Ensure you gain customers
- Protect profit margins for you and your stakeholders
Connecting with your key retailers on their expectations for profit margins should be part of the discussion when finalizing the ideal price point.
We’d be remiss to mention pricing without promotions, which is a science to master, and should be executed only with purposeful consideration. In general, when it comes to pricing and promotion, there are two lenses that can be used: the long-term lens and the short-term one. If the short-term benefits of running a promotion could cause long-term brand image harm, it’s not worth it.
W4: When does your category perform best (or not so well)?
Seasonality is as the name suggests: a number of categories perform better, or worse, depending on external factors. For example, snacks usually see a surge during back-to-school seasons, but more specifically healthy snacks as goes global trends. In the meantime, ice cream performs better in summer for obvious reasons.
Knowing your product’s seasonality is critical for the sake of stocking and setting the right revenue expectations, for both you and your retailer. Low times present the opportunity for creativity in marketing, packaging, and brand positioning, or even an opportunity to consider different SKUs.
So far, we’ve covered the details to know about your category: general performance, distribution, competitors, and pricing across the board. The final two questions zoom in on the center of your attention — your product.
W5: Why is your product the one your target consumers will choose?
NielsenIQ has found that for a product to be successful, there are 12 factors that need to be assessed and achieved: relevance, distinct proposition, attention-catching, clear and concise messaging, message connection, advantage, credibility, acceptable costs, acceptable downsides, findability, product delivery, and product loyalty.
H1: How is your product performing?
The equation for this is simple: volume, value, and items sold over a period of time, specifically more recent quarters. Taking those numbers and showcasing 1) how they perform against your key competitors and 2) how the perform relative to the entire category (how your product performance is affecting the general category performance) can be a key deciding factor for retailers to take you on.
How often should you check the data
Simply, as often as you can access it, which changes depending on your selected data provider as well as your budget.
If you are running a special promotions campaign, for example, ideally you should find a partner that can provide an almost instantaneous response, to allow for necessary changes as needed.
When it’s business as usual, there are three periodic views:
- Monthly: This allows for better visibility of seasonal trends, which could be masked in a lower frequency report. You can also see a direct connection of consumer behavior to out of the ordinary world / economic events. This frequency is most ideal for the product operations team.
- Quarterly: If access to monthly data is not possible, then quarterly would be the absolute minimum frequency for a review. This provides a step back to view the bigger picture, and gives you a sense of where your business stands in relation to your annual goals.
- Year on Year: This is a view of data that applies to both monthly and quarterly reports. This is where you compare a specific month or quarter in the current year to the same one in the previous year. This view allows you to stay on top of the greater changes to the category to which your product belongs — for example, if the category is declining while an adjacent one is growing, or if the category is growing but due to a new competing product launch, etc.
Prepare for your next category review
The points you need to cover during your next review include (but are not limited to):
- What are the market trends?
- How do products contribute to category gains / losses?
- How do market shares / sales of products evolve over 2 or 3 periods?
- KPIs – Overview across products?
- Is the sales evolution of a product accelerating through time?
- What is the market seasonality?
Get started by downloading this category review presentation template with explanations for the type of data behind each slide.