Category Management: Strategic Category Management in Retail
Category management can help your retail team find products, establish connections between buyers and suppliers, and execute the procurement process more effectively. While you can manage categories on your own, it is most effective when combined with a comprehensive product lifecycle management plan.
It’s important to remember that the category management process is not the same as a “product data management system,” which may or may not classify items for offerings. It is also not synonymous with “supplier management,” which pertains to interactions with suppliers.
What is Category Management?
A “category” can be defined as any set of similar items that a company wishes to purchase within a single operation. Category management is the practice of grouping similar products into one category or business unit, focusing procurement, sales merchandising, and other retail activities on that category. Category management can involve separating direct and indirect products or services, or it may pertain to dividing products or services based on cost, supplier, type, or volume. The structure of an individual business determines the nature of the categories.
- Direct costs are directly associated with the final product or service, such as raw material costs, expenses for individuals who manufacture the product, and costs related to the product.
- Indirect costs are expenses not directly tied to the final product or service, such as corporate insurance, electricity, water, and business premises—many commercial overhead costs are classified as indirect expenses.
The core idea of category management is to identify the advantages of a category for the consumer while eliminating inefficiencies and unproductive competition among various brands and suppliers. For instance, this technique can help retailers increase profitability from similar products by consolidating purchases within a single category rather than individual brands or suppliers.
You can also use category management to enhance customer satisfaction. Most grocery stores, for example, are organized by categories (dairy, fruits, meats, etc.), making it easier for customers to navigate the store and locate specific products. Additionally, management has the authority to make changes at the category level. They can roll out new promotions, planograms, and other initiatives across multiple business units.
Eight-Step Cycle
The category management process is divided into steps to make it easier to follow. Brian F. Harris proposed this model in 1997. This structured and formal category plan with specified steps is often referred to as the Brian Harris model.
Step 1: Define Categories
Establish parameters for your category based on your customers’ behavior. This will assist in product selection, segmentation, and other areas.
Step 2: Assess the Role of the Category
What is the connection between this category and the larger company portfolio? What is its overall significance and impact? You can consider this from both a sales and volume perspective.
Step 3: Track Performance
Examine the performance of the category across several dimensions: retailer, market, comparison with other categories, etc. This multi-faceted approach will provide balanced data for the subsequent steps.
Step 4: Set Goals
To ensure success, any company project must have clearly defined objectives. Your marketing strategy is no exception. Establish category KPIs by defining your benchmarks and goals. Sales, volume, market share, and assortment are all strong starting points.
Step 5: Develop Strategy
Consider your company’s marketing strategies and how stores will present the category. It would be best to continue focusing on increasing market share, sales, and traffic (as well as any other specialized goals for your industry).
Step 6: Assign Category Tactics
Establish clear and repeatable actions to enhance category tactics. Think about improving your products, locations, advertising, and supply systems.
Step 7: Implementation
Once you have defined your strategy and tactics, you will need a specific plan for your team. Create a detailed plan for tactics, category roles, strategies, and goals.
Step 8: Review
Reviewing is not a one-time event but an ongoing process. It is a cycle in which you continuously analyze and refine your process. At this final stage, measure your results and make any necessary adjustments, returning to previous processes.
Tools for Category Management
Effective category management processes rely on various retail tools and resources. Professionals must stay informed about what is happening on the shelf. As a result, they need reliable real-time retail information about their product categories. This may include data on planogram compliance, stockouts, display compliance, facing, adjacency, and other topics.
Stakeholders will also want to stay informed about pricing for products in their category. Price adjustments are a standard category tactic, so it is essential to understand how prices for other items are set, what other retailers are doing, and what market trends and consumer price expectations are. Thus, category processes can bring the greatest value to both customers and companies.
Like any other process in the supply chain, category management requires deep knowledge of customer behavior. Which products are popular among consumers? What promotions and displays are most effective? What do they consider advantageous in this category? Brands and retailers should conduct regular customer surveys or consult data providers to gain insights into consumer behavior and purchasing trends.
Conclusion
Every business is unique; the advice presented in this article serves as general recommendations. Successful category management requires substantial data to support and guide your business decisions. Fortunately, numerous tools are available to help you manage your category management program and set your organization up for success. Category management can assist your retail team in finding products, establishing partnerships between buyers and suppliers, and streamlining the purchasing process.
To dive deeper into your category, you can leverage ABM Assortment. This tool will expedite and simplify your business processes using AI and make assortment management more transparent for your company.