Transcript CHAPTER 3 CATEGORY MANAGEMENT

CHAPTER 3
CATEGORY MANAGEMENT
LEARNING OBJECTIVES
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Introduce category management as an
evolving consumer-led approach to retail
product management
Become familiar with associated product
management systems, such as ECR and QR
Introduce the concept of a category and the
category life cycle
Consider the implications of CM for retail
buying organisation structures and supply
partners
Outline the limitations of CM
CATEGORY MANAGEMENT
DEFINITION
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“the strategic management of product groups
through trade partnerships, which aims to
maximise sales and profits by satisfying
consumer needs” (IGD, 1999)
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KEY PHRASES
 a strategically managed product group
(defined by shopping behaviour)
 relies on trade (supply) partnerships
 aims to maximise sales and profits (of
group rather than item)
ASPECTS OF CATEGORY
MANAGEMENT
 A philosophy
 A process
 An
organisational concept
CATEGORY MANAGEMENT AS
A PHILOSOPHY
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Products are considered as a way to satisfy
consumer demand
Demand-pull rather than product-push
(forecasting)
Product features and procurement (buying)
becomes part of, but not focus of product
management process
Suppliers are integrated in category
management process, some become
category champions
Table 3.1 The Category Management Process
Category Definition
Define the Category.
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Category Planning
Category
Management
Implementation
Determine the products that make up the category from a
consumer’s perspective. Consider the role of sub-categories
or individual SKU’s taken in the category.
Establish the strategic role of the
category within the total product
assortment of the retailer.
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Establish the measures upon
which category performance will
be assessed.
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Develop a strategic plan for the category, considering longterm trends.
Formulate a strategy for the
category.
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Establish the category marketing
mix.
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Develop a marketing and supply development plan to
achieve both short term and long-term category objectives.
Establish category management
roles.
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Assign responsibilities for category management
implementation within both retailer and supply partner
organisations.
Category Review
Measure, monitor and modify the category.
Determine the way in which the performance of a category
will be evaluated. Consider various costing and profitability
approaches and include both quantitative and qualitative
assessments.
Determine the various tactics to be used within the
marketing and supply plan, e.g. space allocation,
promotions.
Adapted from Fernie and Sparks, Logistics and Retail Management (1998:33, Kogan Page Publishers
and Basury et al, 2001
DEFINING A CATEGORY
A category should be established by the
way consumers buy the product
 Usually products in category are
reasonable substitutes for one another
(e.g. fruit yoghurts)
 Sometimes a category is defined by
products being complementary (e.g.
‘exotic foods’)
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THE ROLE OF THE SKU
WITHIN THE CATEGORY
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When defining the category individual
roles of SKUs (stock keeping units, or
product items) are acknowledged:
 traffic
builders
 sales and profit generators
 excitement creators
 reinforcement of retail brand
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Products without a clear role should be
eliminated from category
THE STRATEGIC ROLE OF THE CATEGORY WITHIN A RETAILER’S
PRODUCT ASSORTMENT (TABLE 3.2)
RETAIL BRAND REINFORCER
CASH-FLOW CONTRIBUTOR
PROFIT GENERATOR
SERVICE PROVIDER
DESTINATION
New Categories
High fashion and symbolic categories
High technology product categories
Includes strong (retailer or manufacturer) brands
Create excitement and theatre in store
Established categories
Non-symbolic categories
Consistent value provision
Growing categories
Fashion categories
Symbolic categories
High profit margins
Stagnant or declining categories
Staple product categories
Well established market leading brands
Competitive with other category providers - low
profit margins
Growing or well established category
Contains leading brands
Deep and wide assortment
Considered the best retail offer by target customer
PRODUCT CATEGORY LIFE
CYCLE
The category life cycle is more useful than
the (individual product life cycle) to the
retail product manager
 The different phases of the category life
cycle have implications for category
management
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IMPLICATION OF THE CATEGORY LIFE
CYCLE FOR CATEGORY MANAGEMENT
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Insert Figure 3.1
CATEGORY MANAGEMENT AS AN
ORGANISATIONAL CONCEPT
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Category management brings a stronger
marketing orientation to product management
More cross functional role: tending to reduce the
role of ‘buying’ and augmenting the role of
‘merchandising’
More involvement with store level product
management, e.g. space allocation, display and
in-store promotions
A team organisation that spans across supplier’s
and retailer’s boundaries (see Fig. 3.3)
THE RETAILER-SUPPLIER
INTERFACE
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Insert Figure 3.3 and acknowledgement
CATEGORY MANGEMENT AND ECR
(Efficient Consumer Response)
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Truly responsive product management requires
retailer’s supply chain (as well as retailer’s
buying organisation) to be responsive to
consumer demand
CM is usually part of responsive supply chain
management (e.g. ECR)
 “a
seamless interface from customer purchase to
manufacturing schedules” (Lowson et al, 1999: 40)
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ECR aims to maximise customer satisfaction
while minimising supply costs
THE PRINCIPLES OF ECR
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Insert Figure 3.4
THE SCOPE OF ECR
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Insert Figure 3.5
INFORMATION FLOW AND
DATA TECHNOLOGY
Insert fig 3.6
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Development of ECR
has been dependent
on enabling
technologies
Data management
and sharing across
parties in supply
chain is a requirement
for ECR
CATEGORY MANAGEMENT
LIMITATIONS
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Category management relies on theory and jargon,
many well-run retailers have adopted the principles of
CM and ECR without the help of consultants
Change in organisation not always possible due to skills
shortage
Retailers often have difficulty accepting suppliers as
partners
‘Efficient’ ranges have danger of becoming boring and
looking like those of competition
Smaller suppliers can be squeezed out
Smaller retailers may not have resources to adopt CM