Category Management

Category Management

Asst Prof - George.K.J

Objectives

What is category management

• What category management can do for

your store, your buying and your

customer

• How to build a category, the rules

• How to use the information to grow your

business and increase customer

satisfaction

The Merchandise Hierarchy

Store

Department

Category

Item

Sku’s

Sub Category

What Is Required

Sales should be captured at the SKU

level

• Some items are replenished at the SKU

level (basics)

• Everything else is done at the category

level (planning & analysis)

Category Management

Category management is the process by

which we manage our business at the

category level to deliver better product,

pricing and service to our Customers

• First and foremost category

management is Customer focused

Category Definition

A category is a group or assortment of merchandise that the Customer finds interchangeable Would a Customer who was looking for a dress for work and not finding one, settle for a bathing suit?

CategoryA distinct, manageable group of products/services

that consumers perceive to be interrelated and/or substitutable in meeting a consumer’s needs.

Category ManagementThe process of managing categories as strategic

business units, producing enhanced business results i.e. sales and profits with a focus on delivering consumer value.

Charter for Change

From PushSalespersonBuyer/SellerCost AveragingDealsSales Drivers

ToPullBusiness TeamAccount ManagementCost to ServePay for PerformanceProfit Drivers

Charter for Change

From

Data Protection

Data

Shelf Management

Win/Lose

To

Data Sharing

Knowledge

Assortment Management

Win/Win

Elements

• Manage the category as a strategic business unit• Develop strategic category plans based on

category goals, competitors and market conditions

• Determine price, merchandising, promotion and

product mix• Collaborate with suppliers

Process Activities

Category Definition

Category Role

Category Assessment

Category Scorecard

Category Strategies

Category Tactics

Plan Implementation

Category Definition

• What products are in a category?• How will categories be grouped?

Category

Sub Category

Sub Category

Segment

Segment

Segment

Segment

Sub Segment

Sub Segment

Sub Segment

Sub Segment

Sub Segment

Sub Segment

Sub Segment

Sub Segment

Category Role

• DestinationTo be the primary category provider and help define the retailer as the storeof choice by delivering consistent, superior products.Determines where I go to shop.• RoutineTo be one of the preferred category providers by delivering consistent,competitive value products.Once at the destination, fills up the basket.• Occasional/SeasonalTo be a major category provider, help reinforce the retailer as the store ofchoice by delivering frequent, competitive consumer value.Purchased as need arises.• ConvenienceTo be a category provider and help reinforce the retailer as the store of

choice by delivering good consumer value.Not worth a special trip elsewhere

DESTINATION Category

• Helps define retailer as “ Store of choice” Constitutes major part of customer plannedpurchase These product groups carry“Best Range at Best Prices”• Implications:-• High Traffic, Exposure and Space allocation• Promoted at high frequency• Lead in share, sales, consumer satisfaction andservice level.• Alliance with Trading partners

ROUTINE Category

Helps develop Retailer as “store of Choice”

Customers buy these products as a matter of

routine

These product groups carry

“Competitive Range at Best Prices”

Implications:-

• Average location with high frequency

• Promoted with average frequency

• Requires preferred Suppliers

• Primary role in delivering profit and cash flow.

CONVENIENCE Category

Customer buys these products from a nearby

retailer rather than a distant retailer offering better

value

These product groups carry

“Select Range at Good Prices”

Implications:-

• Enhance margin and Profit generation

• Available space location.

• Low level of promotional activity

Seasonal / Occasional Category

Customer buy these products infrequently or seasonally.

Seasonal category can become a “ Destination Category”

during the season.

These product groups carry .

“Best Range at Best Prices”

Implications:-

• Timely variety of major Brands and Sku’s.

• secondary role in providing Profit, cash flow

and ROI.

• High traffic and average space allocation.

• Seasonal / timely promotional activities

SUB GROUP ROLES

• TRAFFIC BUILDER

• PROFIT GENERATOR

• IMPULSE

• IMAGE CREATOR

TRAFFIC BUILDER• High share in the product group

• Frequently Purchased

• High % of sales

• Higher Turns

PROFIT GENERATOR• Higher gross margins

IMPULSE• Customers are not brand conscious• Unplanned purchase• Visibility / Promotion driven• Stock turns are high• Need to be promoted heavily

IMAGE CREATOR• Specialty category• Caters to a niche segment• Highly promoted• Gives higher margins

Develop Tactics & the Business Plan-How do Category Strategies Translate into Tactics and the Business Plan?

Destination

Above “fair share” of MarketBelow “Average” Handling &Warehouse CostAbove Projected AccountedgrowthAverage ROi

Attract new customersIncrease # of tripsReduce handling costsReduce holding costs

Merchandising Feature & Display52 weeks a yearPricing: Top 10 SKUs belowlowest competitor everydayShelving: Prominent aisle locationSelection: Maximum Variety vs.Market

Routine

Seasonal/Occasional

Convenience

Merchandising: Feature & Display26 weeks a yearPricing: Top 20 SKUs equal tolowest competitors everydayShelving: Section large enough forzero OOSSelection: Equal Variety versusMarket

Fair Share” of MarketFair Share” of Market GrowthBelow “Average” Handling &warehouse costsHigher than average ROi

Above “fair share" of market atpeak consumption periodsHigher than “Average” servicelevel during peak periodsBelow average operating Expense during non peak periods

• Contribute above “fair share”of profit• Contribute above “fair share”of ROi

Increase $/PurchaseReduce Administrative costsReduce Holding Costs

Attract new shoppersIncrease % trips with Category purchaseReduce holding costs

Increase % of trips withpurchaseIncrease Rs/PurchaseReduce requisition costsReduce handling costs

Merchandising: Available SpacePricing: Non-inflammatoryShelving: Minimum space requiredSelection: Most popular SKUs only

Merchandising: Prominent Feature& display for key weeksPricing: Feature pricing lowest,shelf slightly higherShelving: Minimum needed spaceSelection: Large Variety forimpulse, reduced balanced of year

Role (Objective) Possible Goals Possible Strategies Possible Tactics

ADVANTAGES

• Helps to decide on the range which we carry

• The discounting of a category

• Promotions of the category

• Decide the no. of players in a sub group

• Placement of category in the store

Rationalization Options

Maintain : No change to current assortment

Increase : Increase the number of SKU’s in the

category, sub-category and segment

Decrease : The no. of sku’s in the category,

subcategory and segment.

Swap/Exchange : Alter the mix of SKUs by replacing

existing SKUs with new SKUs

Tailor/clustering : Tailor the assortment by store or

clusters of stores

Private label : Develop, abandon or expand on private

label representation within the category, sub-category and segment.

Traffic Building High Share Frequently Purchased, High % of Sales

Transaction Building Higher Ring-up, Impulse Purchasing

Profit Contribution Higher Gross Margin, Higher Turns

Cash Generating Higher Turns, Frequently Purchased

Excitement Creating Impulse, Lifestyle-Oriented, Seasonal

Turf Defending Used by Retailers to Draw Traditional Customer Base

Category Strategy Category Strategy Characteristics

Image Creating Frequently Purchased, Highly Promoted Impulse, Unique Items, Seasonal

Rules

Customers define category structure

• Use Department, Category, (Subcategory)

• No more than 10 departments per store

• No more than 10 categories per

department

• No more than 10 subcategories per

category

Benefits of Category Management

“Customers vote with their wallets”, we

can summarize the votes in a logical,

easy to understand way

• Tracking our business by department

does not tell us enough

• Tracking our business by SKU does not

tell us much beyond our top best sellers

and our worst sellers, it ignores the

majority of our business

Benefits of Category Management

• Proper categories make store

placement easier and shopping easier

for Customers

• We can also promote, discount, clear by

category

• Category expansion/extension becomes

easier to justify more likely to succeed

Category management requires

Proper identification of categories

(names)

• Display at the category level

• Planning at the category level

• Open to Buy at the category level

• Reporting at the category level

• Price analysis at the category level

How to create categories

Example – Grocery Store

• Department = Health & Beauty

• Categories

– Cosmetics / Treatment

– Cosmetics / Color / Fragrance

– Vitamins

– Oral care

– Hair care

– OTC

– First Aid

Another

Example – Department Store• Department = Men’s Clothing• Categories– Dress pants– Casual Pants– Shorts– Dress Shirts– Casual Shirts– Accessories– Underwear– Outerwear

Display at the category level

If the definition of category is a grouping

or assortment of merchandise that the

customer finds interchangeable, we

must display all merchandise in a

category together

• Some merchandise may require multiple

display areas (i.e. batteries, candy,

impulse items)

Planning at the category level

Merchandise plans must be prepared at

the category level

• Sales, Inventory, Markdowns are the

key numbers for planning and yield an

Open to Buy at the Category level