Category ManagementCategory Management approach usually applied in a trade chain

What is Category Management?

Category Management is a retailing and purchasing concept in which the range of products purchased by a business organization or sold by a retailer is broken down into discrete groups of similar or related products; these groups are known as product categories. It is a systematic, disciplined approach to managing a product category as a strategic business unit.

Brian F.Harris

Why?

1970 • Small stores• Less than 400 feet squares• 200/300 SKUs• Growing consumption• Unstructured chains

2015 • Multi format stores• More than 30.000 feet squares• More than 20.000 SKUs• Oversupply• High competitiveness

So..

• In a competitive business just organized and proficient chains will stay on the market.

• A huge complexity behind the workflows impose to approach the business considering each category as a single business, in order to decrease the whole complexity.

• So it's important ensure a managing system for each category through strategies of pricing, promotion, assortment and exposure aiming achieve results of sales and margins.

Steps:

DefinitionDefinition

RoleRole

EvaluationEvaluation

TargetsTargets

StrategiesStrategies

ActionsActions

Assign a specific role for each category, considering our customers needs and behaviours.

Evaluate gap and opportunities for our categories compared with the market

Set a clear and achievable target for each category in terms of sales and margins, considering market trends.

Set strategies of Assortment, Price, Promotion and Visual Merchandising in order to achieve sales and margins targets

Apply strategies and processes.

Ensure a correct execution for each strategy and a total engagement of every department in the processes.

ExecutionExecution

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Define segmentation and products for each category.

Definition

DepartementDepartement

FamilyFamily FamilyFamily FamilyFamily

CategoryCategory CategoryCategory CategoryCategory

SegmentSegment SegmentSegment SegmentSegment SegmentSegment

Brand

Formati

Referenze

Brand

Size

SKUs

DefinitionDefinition

RoleRole

EvaluationEvaluation

TargetsTargets

StrategiesStrategies

ActionsActions

ExecutionExecution

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Definition:

Departement Families Categories

Alcoholics Spirits Flavoured Spirits

    Brandy

    Vodka

    Whisky

    Rum

    Gin / Genever

    Tequila

  Wine Still Light Wine

    Sparkling Wine

    Fortified Wine

    Light Aperitifs

    Other Wines

  Beer Alcoholic Beers

    Non-alcoholic Beers

    Cider

SegmentCanadian Whisky

Irish Whiskey

Other Whisky

Scotch Whisky

US Whiskey

Definition:

WINE

STILL SPARKLING FORTIFIED

RED WHITE

Light GrapefruitFloral

Light Herbal Grassy

Rich Creamy Nutty

VermentinoVerdicchioGreco di TufoPinot Blanc…

Sauvignon BlancVerdejoGruner VeltlinerChevemy…

ChardonnaySoaveCote de BeauMacconais…

Light CitrusLemon

Pinot GrigioGarganegaFianoSilvaner…

MediumPerfum Floral

TokajiViognierRoussanneMarsanne…

Definition:

EAN code is a European Barcode (UPC in USA)

Is printed over the products and is read by POS.

May be 13 or 8 digits

Definition:

So, the first step is to understand characteristics and values of the Category focusing our attention in each segment, in order to define specific strategies for similar groups of products.

Role:

Profit contribution(Margins,Contribution)

Loyalty Driver(Frequency, Sensibility of consumers)

Caffè

Te

Biscotti

Succhidi frutta

Pasta

VerduraSurgelata

Birra

PesceSurgelato

Gelati

Dolci

Routine Destination

Convenience Occasional

DefinitionDefinition

RoleRole

EvaluationEvaluation

TargetsTargets

StrategiesStrategies

ActionsActions

ExecutionExecution

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Role:

The Role of categories is set considering:- the importance for the customer (frequency, sales, price sensibility)- trade interests (margin, profit, contribution)

The role may be customized for:- area - store format- seasonality

Role:

Cookies

Sugar

Wine

Pasta Milk

Salt

Omogen

Aperitifs

Mozzarelle

Yougurt

Water

Beers

Oil

Tomatoes sauce

Champagne

Coffee

Bread

Loyalty Driver(Frequency, SensibilityOf consumers)

Profit contribution(Margins,Contribution)

Role:

Routine• Daily needs• Store Traffic

generator • Price Competition

Destination• Loyalty and sales• Need for

differentiation• Competitive

advantage

Convenience• Occasional needs • Niches• Service for

consumers

Occasional• Emotional

purchasing • New markets• Customer

Satisfaction

Loyalty Driver(Frequency, Sensibility)

Profit contribution(Margins,Contribution)

Evaluation:

Fair Share

Sales

Market share

DefinitionDefinition

RoleRole

EvaluationEvaluation

TargetsTargets

StrategiesStrategies

ActionsActions

ExecutionExecution

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Evaluation:

Comparing internal and external data it is possible to find points of strength and points of weakness:- Market Share for each category (Fair Share);- Market Share for leader brands;- Market Share for private labels;- Frequency and Sales in cut prices;- Number of SKUs in each Category;- Price Average;- Margins;- SKUs opportunities in the market;

Targets:

CategoryCategory

SegmentSegment

CategoryCategory

SegmentSegment

CategoryCategory

SegmentSegment

+ 5%+ 5%

+ 11%+ 11% + 6%+ 6% + 3%+ 3%

+ 11%+ 11% + 6%+ 6% + 3%+ 3%+ + = + 5%+ 5%

Targets TreeDefinitionDefinition

RoleRole

EvaluationEvaluation

TargetsTargets

StrategiesStrategies

ActionsActions

ExecutionExecution

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Targets:

We have to set targets in terms of gross margin (sales x margin%). Managing the sales mix is the best way to achieve our targets. So we need to influence the sales of every brand.

Strategies:

TRAFFICTRAFFIC

FREQUENCYFREQUENCY

PROFITPROFIT

PRICESPRICES

ENTHUSIASMENTHUSIASM

Strategies for increase the number of customers in the category

Increase the number and the ammount of purchasing for each customer

Keep a good profitability, through discounts and contribution

Increase net turnover through a bigger share of premium products.

Get more loyalty dispensing informations, tips, interactions

DefinitionDefinition

RoleRole

EvaluationEvaluation

TargetsTargets

StrategiesStrategies

ActionsActions

ExecutionExecution

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Strategies:Every strategy should be declined in 4 kind of actions: Assortment, Price, Promotion, Exposure.Depending of the role we can identify:

Price: Medium competitiveness Price: High competitivenesscompared with compared with all the competitorsmain competitors

Promotion focus on cut prices Promotion deep cut prices

Exposure spaces in line with sales. Exposure overdimension the spaces.focus on margins. focus on the niches.

best areas.

Assortment number of products in line with the Assortment Number of products highermarket. specific role for cheaper than the market.products and private labels. Many premium brands and

exclusive ones.

Price: Less competitive than Price: Medium competitivenessmain competitors

Promotion No promotions Promotion few promotionsgood margin

Exposure Worst store areas Exposure correctly dimension the spaces.good areas.

Assortment narrow assortment Assortment narrow assortmentno private label private label in core segmentsno premium prices deep of premium prices

Ro

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Strategies:

Every strategy aims to decrease market share of unprofitable brands, improving share of profitable ones. How? Defining promotions, prices, and exposures in order to influence the consumer choice.

Actions:

ASSORTMENT

PROMOTIONS

VISUAL MERCHANDISING

PRICES

Number of products,Wideness of category,Deepness of category

mechanics, frequency, deepness

high competitiveness,medium competitiveness,low competitiveness

Category PlanDefinitionDefinition

RoleRole

EvaluationEvaluation

TargetsTargets

StrategiesStrategies

ActionsActions

ExecutionExecution

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ShelfExtra ShelfPromotional

Actions

ASSORTMENT Reviewed each 6 months allow you to drive seasonality and change of consumption

PROMOTIONSPlanned every year have a great impact on sales, so is very important in negotiation

PRICESEvery week we need to change our competitive positioning, comparing our price with the main competitors

VISUAL MERCHANDISING

After every Category Review (every 6 months) we need to set new exposures, both for shelf and extra-shelf.

Frequency of actions:

Execution

Category ReviewCategory Review

TestTest

Roll-outRoll-out

Monitoring

DefinitionDefinition

RoleRole

EvaluationEvaluation

TargetsTargets

StrategiesStrategies

ActionsActions

ExecutionExecution

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Category Management

Fabio.Bullita@yahoo.it