category management-session 9.ppt

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CATEGORYMANAGEMENTTOT on Retail Buying & Category

Management

3rdJan7thJan, 2011

MumbaiNIFT

Asst. Prof. Lipi Choudhury

Session 9


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THE ORIGIN

CUSTOMERSATISFACTION

+IMPROVEMARGINS ?

POS


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In the early 1990s, grocery retailers in the United States were

ready for a better way to run their business.

New products were proliferating,while consumers were becoming more

diverse and demanding.

Other classes of trade such as warehouse clubs were emerging.

Wal-Mart was getting ready to roll out its supercenter format that

combined the retailers traditional general merchandise store with a

full-line grocery store under one roof.

A dramatic change was needed.

Retailers sought a way to improve margins and compete more effectively.

They wanted to reconnect with consumers and satisfy their needs, or face

the prospect of an eroding shopper base.

The Origin


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Many progressive retailers and manufacturers realized the data available

from retail point-of-sale (POS) systems carried crucial information for

success.

Was it possible to figure out which products to stock in a certain store?

Could analysis of the data tell retailers how to customize the shelf sets in all

the stores of a chain according to what shoppers were buying and wanted to

buy?

Could they attract and retain specific niches of high-value shoppers?

The answer was yes.

The way to do it was a process called category management that was

developed in the early 1990s by The Partnering Group (TPG), a consulting

firm.

A few of the larger retailers began testing the process. Soon the

manufacturers jumped on board with advice and support. They then started to

help other retailers adopt the principles as well.

In no time, category management was promoted enthusiastically and became

a must-have process for retailers and manufacturers.

The Origin


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Early Practitioners

Safeway was one of the original practitioners.

Others included Kroger, Albertsons, and Publix.

SUPERVALU, the first wholesaler to practice category management,

brought the process to small independent retailers.

On the manufacturer side, Phillip Morris and the Coca-Cola Company

were early supporters of category management.

The latter developed a training program about the process that is still

distributed to retailers. It helps them understand what category

management is all about and what Coca-Colas role in the process is.


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Category Management is a distributor/supplier process of managingcategories as strategic business units, producing enhanced businessresults by focusing on delivering consumer value.

There are three key concepts in the above definition.

First, both distributors (retailers and wholesalers) and their suppliers(manufacturers and brokers) focus on delivering the best possible valueto the consumers.

Second, it is a collaborative process that produces enhanced business

results for both partners.

Third, this process requires managing categories as Strategic BusinessUnits (S.B.U.).

Definition


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Another way to think about CategoryManagement is to view the entire value

chain as consisting of demand/supply

chain, with Category Management being

focused on the manufacturer/retailer

interface.

It should be noted that internal to the

manufacturer, there are product

management functions that should be

organized by categories.

Similarly, internal to the retailer, there are

customer management functions (such asloyalty programs) that need to be aligned

with the Category Management functions

for maximum impact.

Product/Customer Management: A Conceptual Model

Category Management


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The retail consumer products industry is in a state of major transition due

to consumer, technological and marketplace trends.

Category management is an indispensable element of the industry'stransition to both more efficient operational practices and moreeffective consumer marketing.

Category management represents a significant and proven opportunityto achieve substantial business improvements across the entire valuechain - for consumers, distributors and suppliers.

However, it requires a major commitment from each trading partner inthe form of strategic alignment, modified structures, work processes, and

information technology systems.

To make this commitment, top management must understand thepotential contribution of category management, recognize the scopeof change required, and personally lead their respective organizationsthrough these changes based upon their unique circumstances.

The opportunity


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Category Management has been a topic of growing importance to the

consumer products industry ever since point of sale (P.O.S) scanning allowed

an accurate assessment of product movement.

Starting with shelf space allocation in line with product movement, categorymanagement has evolved to include a variety of concepts for managing the

demand chain:

Category management describes an emerging organizational design for

distributors.

The distributors buying and merchandising functions are integrated through

category management teams responsible for developing category business

plans both internally (procurement, merchandising and operations) and with

suppliers.

These category business plans are aimed at improving the overallperformance of the category, instead of buying the best "deals" and then

merchandising the best "sale" without understanding the impact of

merchandising plans on the category as a whole.

Scope


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Category Management also describes the reorganization of thesuppliers customer interface and internal profit centers.

It represents organizing around customers (as multi-functionalcustomer teams), and categories instead of geographies andbrands.

Customer teams are supported by policies and practices designedto add value to the total category management process.

Category Management describes the interactive and collaborativebusiness process in which distributors and suppliers partner tocreate and manage consumer-focused category plans to boostretail image and company profits.

Scope


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Scope


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Scope

B i B fit


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The benefits from Category Management vary across retail formats,category partners, and geographies depending upon how well it isbeing practiced.

On average ,in the United States , the following results have beenachieved:

Sales increases of about 7% for the total category, with about 5%being achieved for the manufacturer selected as the categorypartner.

Margin improvement of about 5% for the retailer, with reduced # ofitems and retail inventories; sometimes reduced space allocation as

well.

Margin improvement for the manufacturers due to lower cost of salesand trade promotion costs. This number has varied considerablydepending upon how differentiated the category is, and how well themanufacturers have developed their internal capabilities.

Business Benefits

category management-session 9.ppt

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