June 3, 2024
As competition and consumer expectations rise, category management separates leaders from the rest of the pack. In this blog, we cover the definition of category management, it's 8 steps, and strategies to be successful at it.
The goal of the category management is to ensure that each category’s performance is maximized to its full potential, by implementing different strategies and tactics starting from buying and supplier management to visual display and sales performance management.
Each category is hence treated as a stand alone business unit and extra care is given to the different product SKUs under that category. This ensures that products don’t get neglected and inventory turnover ratio is maximized as much as possible.
The origin of the term "category management" can be attributed to Brian F. Harris, who is known for his role as the founder of The Partnering Group (TPG) and his past position as a professor at the University of Southern California.
During the early 1990s, The Partnering Group (TPG) formulated an extensive eight-step process for category management, which eventually gained widespread recognition as the industry standard. The eight cyclical steps are outlined as follows:
According to the Brian Harris Model, category management process is divided into 8 steps that are implemented in order as below:
In the most simple terms, a category consists of products that serve the same purpose for and belong together in the consumer’s mind.
Under each main category, there should also be sub-categories for each product. For example, the main category for Mozzarella cheese could be “dairy products”, while the sub-category would be “cheeses”.
In addition, effective categories should enable more effective promotional planning to see to it that supplementary products are considered and contribute to additional purchases at higher margins.
Once category definitions are in place, the second step is to determine how each category fits within the dynamic of the store and the retailer's larger portfolio. Over time, retailers tend to cultivate specialized knowledge in specific categories, which eventually contributes to their intellectual capital. This expertise becomes a defining characteristic of the company, often being recognized as one of their core strengths.
Common product categories include:
Destination Products: These products make a retailer the consumer's first choice for a particular product, and are central to the retailer's identity/positioning in the market.
For example, the destination product at Bath & Body Works (a bops customer) is “Candles“.
Routine Products: These products provide a competitive value for the consumer’s everyday needs, positioning the retailer as one of the preferred category providers.
Looking at it from a consumer's perspective, "I buy these products on a regular basis for my daily needs so I look for the store which offers me the greatest value and consistent shopping experience".
Convenience Products. These products complement the shopping experience for the consumer, serving as add-ons to the main categories.
An example of a convenience product can be snacks and beverages in personal care stores such as CVS.
Seasonal Products. These products are associated with particular seasons, holidays, or special occasions. It's important to note that seasonal products can be used by a retailer to differentiate themselves from competition during a certain period of the year.
Examples include Christmas related products at Target.
Analyzing and allocating roles to these different categories, as well as the respective products within them, plays a crucial role in establishing an effective category management strategy.
You cannot improve what you don't measure. So, now that we've defined the role for each category, it's critical to assess the performance of those category by using sales and inventory reports, and performing a complete inventory analysis for the products under each category.
Once the analysis from the previous step is complete, now it's time to set your new objectives for each metric you want to improve, including but not limited to margin, sales, and volume.
After conducting the analysis in step 3 and determining your objectives and targets in step 4, it is now time to put together a game plan, outlining your path from the current performance to the desired performance within a specific timeframe.
This game plan involves devising broad category management strategies, for each category, that are to be implemented using specific tactics in-line with the 4 P's of Category Management: Purchasing, Pricing, Promotions, and Product display.
Category tactics are specific actions that you and your team will implement to execute on your strategy, and achieve your objectives for a particular category within the specific timeframe.
These tactics will be designed in-line with any of the following:
It's time to execute on your plan!
The implementation of the plan typically involves a collaborate effort between category managers, store managers, and suppliers.
In this stage, it is critical to assign specific roles for each tactic in the plan and be aligned on the expectations for each party.
Rigorously follow up, review and evaluate your results, and modify any of the processes as you cycle back through each step.
Successful implementation of any category management strategy relies on the ability to swiftly and precisely determine the right assortment of products, with a focus on what products to add, and what products to discontinue. Although these decisions require a careful balance of expertise and data, they have long relied heavily on the former.
Today, retailers have access to more consumer data, such as from the point-of-sale, than ever before. In addition to sharing this data with consumer brands, they can leverage it to supplement traditional market research and paint a COMPREHENSIVE view of consumer demand and how categories are performing in line with it. This data-first approach can lead to powerful insights into important questions such as:
The most advanced consumer brands and their retailer partners that we partner with are using retail analytics and intelligence, powered by AI, on an everyday basis, and not a one-off effort.
And the more they embed analytics into their core operations, and create a data-driven culture, the faster they are sensing and responding to consumer demand.
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