Future of Category Management

8/11/2019 Future of Category Management

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The Future of Category Management

Creating value in the current market conditions

JERRY SINGH

www.categorymanagement.com281-242-7098


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Presentation Objectives

Category Management Concepts & Evolution

Barriers To Successful Implementation

Current Market Conditions & Trends

Implications for Industry Participants

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Category Management Concepts & Evolution


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Category and BrandsNeeds Vs. Wants

Consumer Needs

??

Consumer Wants

CATEGORY BRAND


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Definition of a Category

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A category is a distinct, Manageable group ofProducts/Services that consumers Perceive tobe Interrelated and/or Substitutable in meeting a

Consumer Need

ECR Committee


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The Anatomy Of A Brand

Brand Soul

OrEssence

Positioning

Attributes Benefits

Equity


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Category Management Enablers:Bar Code Scanning and Information & Communications Technologies

Bar code scanning led to faster and more accurate product movementdata across the supply chain. Shelf Space management emerged to

take advantage of the store level sales data to allocate space in linewith consumer demand.

Quick Response/Efficient Consumer Response were industryinitiatives to improve supply chain efficiency. Initial pilots showedSales and Inventory turns could be improved and out of stocks andreordering lead time reduced with Retailer/Suppler cooperation.

Innovative retailers and suppliers built technical and organizational

infrastructures to take advantage of the opportunities arising from thenew technologies.

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Category Management& Efficient Consumer Response

Industry initiatives identified opportunities for major improvement

through distributor supplier cooperation with Category Management

focusing on the top line, and Supply Chain Management focusing

on reducing costs.

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Assortments,Promotions,

New Product

Introductions

CategoryManagement

Demand Side:

Replenishment Sales &Profit

PurchaseFrequency

ShoppingBasket

CategoryReach


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What is Category Management?

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The following Committee Definitions have been used

US & Europe ECR Committees

Category Management is a distributor-supplier process of managingcategories as Strategic Business Units, producing enhanced businessresults by focusing on delivering superior Consumer Value

FMI-Kellogg School of Management

"The process of managing items in a product category as a strategic

business unit by jointly determining with the suppliers pricing,merchandising, promotions and product mix based on category goals,the competitive environment and consumer behavior


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Developing and Monitoring a Category Plan

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Market/Retailer Assessment

How is the category currently performing?

Market share

Market growth

By channel and competitor

Is the current position and trend acceptable given category role?

Is there an opportunity gap (the category share of the market less

than the total retailers share of the market)?

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Opportunity Gap Analysis


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Category Assessment:Analysis from Four Perspectives

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RetailerContribution

&Productivity

ConsumerBuyer Profile

&Purchase Behavior

SupplierShare & Efficiency

MarketMarket Share &

Trends/Gaps

CategorySub-Category

SegmentBrand

SKU


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Quadrant Analysis - Market Share Gap

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Market Share

MarketGrowth

Starters/Alternators

Motor Oil

Brakes

ExteriorAppearance

Battery

Truck Accessories

Suspension / Struts

Interior Appearance

Wiper Systems

Ignition

SLEEPERS WINNERS

OPPORTUNITIESQUESTIONABLES

21%

18%

17%

19%

23%

22%

MidpointsMkt Share = 20%

Mkt Growth% = 2.5%


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Category Marketing Strategies

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Traffic Building

Transaction Building

Profit Generating

Turf Protecting

Cash Generating

Excitement Creating

Image Enhancing

Consumer Draw

Increase Register Ring

Increase Category Profits

Defend Sales & Shares

Increase Cash Flow

Generate Sense of Opportunity

Reinforce Retailer Image


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Category Marketing Stratogram:Coffee Category

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Mild & decaf. coffee- all sizes

Instant traditional Private label Substitutes

Category Role Strategies Products

Preferred

TrafficBuilding

TransactionBuilding

ProfitGenerating

Premium Regular Coffee- Top 3 brands- 500 gram sizes

Instant specialties

Mid to premium pricedregular coffee

Coffee filters Coffee Cream Specialized coffee sweeteners


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Category Tactics

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Specific Tactical Plans for:

Assortment

Pricing

ShelfPresentation

Promotion

Category Tactics


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Barriers To Successful Implementation

Of Category Management


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BarriersTo Successful Implementation Of Category Management

1. Category definitions vary across the industry

2. Data needed for Category Management comes from diverse

sources

3. Retailer-Supplier strategies must align & agree on information

sharing between partners

4. Organization structures and processes must facilitate Category

Management

5. Information Infrastructure must enable easy access to data and

analysis

6. Critical mass needed to realize full benefits as total systemsynergies are greater than individual categories

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Category Definition Process

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Define the consumer need...

All products thatmeet the need

Interrelated

OperationallyFeasible

Measurable

Substitutable

Manageable

The CATEGORY(SKU Grouping)

SKUSKUSKUSKUSKUSKU

SKUSKUSKU

SKUSKUSKU


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Category Definition:Consumer View

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Most Retailers Category definitions arebased on format strategy and storedesign & layout

Most Manufacturers Categorydefinitions are based on product scopeand operating units

A Cornell University survey found that Retailers tracked 191 Categories,

Wholesalers 184, and Nielsen 292!

Defining theCategory with a

Consumer focusis essential


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The Retailers Dilemma

Broad

NarrowToothPaste

Tooth

Powder

ToothBrush

MouthWash

Floss

DentureAdhesive

ToothacheReliefHow should the

Oral Care Category

be defined?


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Category Assessmentdata comes from diverse sourcesrequiring information sharing.

Information

Manufacturer Store

Market Research CompaniesACNielsen, IRI, GfK,...

Consumer knowledge Market insights Creative marketing approaches

Category POS-information Store based measures Supply Chain costs

DATA DATA


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And better information is needed

Category Management leads to:

Consumer driven category definitions

Need for down-to-SKU data

Different category segmentation

Need for store level detailed data(for in-store execution of category plans)

Need for customized category and market data


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Strategic Alignment

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Before Category Management can be implementedRetailer & Manufacturer Strategies must be aligned.

What is the Mission of our Company?

Who is the Target Customer?

What are the Format/Channel strategies?

What is the basis of competitive positioning?

What are the financial, marketing and product supply strategies?

What is our relationship with our trading partners?


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Alignment of well defined, complete corporate strategies leads toa common vision for the category that guide key decisions

Manufacturer Retailer

Strategic Alignment

Senior management involvement is needed to force internalstrategy linkages, strategic decision-making, and resourceallocation needed to reveal mutual value chain opportunities


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Reengineering OfCustomer-Supplier Interface

Sales Customer Teams

Buying/Merchandising Category Teams

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This restructuring and acquisition of new skills andInfrastructure to support the reorganization takes time

Category Management has resulted in reengineering of sales & marketingfunctionsof major manufacturers and buying & merchandising functions of

major retailers world wide.


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Customer Interface Design

PreCM

Sales

Manufacturer Retailer

Buying

PostCM

Customer Team Category Team

Logistics

Marketing

Customer Team Manager

Retail Operations

Finance & Systems

Logistics

Merchandising

Category Manager

Store Operations

Finance & Systems

Logistics

Marketing

Retail Operations

Finance & Systems

Logistics

MerchandisingStore Operations

Finance & Systems

O i ti l F t


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Organizational FactorsAffecting Category Management Execution

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People Structure

Rewards &Recognition

Information Sharing Decision Making

SkillsExecution


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Category ManagementInformation Infrastructure

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SupplierHeadquarters

Customer Teams

Syndicated P.O.S

Warehouse

Retail HQ

*Category Teams

*Purchasing/Merchandising

DATA

SCAN

DATA

Store

*POS/Scanning

Shipper

Warehouse

DSD

Wal-Mart technologyprovides real time

feedback anditem level control


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AchievingCritical Mass Key To Realizing Benefits

To build internalawareness/enrollment

To develop a plan toachieve capability

To develop basiccapability

To understand /experience CategoryManagement

To achieve early results

Operationalization:

Rollout

Integration:Ongoing

Foundation: Pilots

To operationalizeCategory Management

To design necessaryorganization enablers

Systems

Organizations

Performance Metrics

Rewards

To begin organization

transition To begin achieving initial

results

To develop advancedcapabilities

Micromarketing Activity Based

Costing

To establish routine on-going process

To create sustainableorganization change

To achieve full potentialbenefits


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Current Market Conditions

and Technology Trends


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Current Market Conditions

1. Retailers cutting costs, luxury in real trouble

2. Risk mitigation across the board

3. Retailers focusing on shopper experience

4. Human Resource Management emphasis

5. Multi-Channel approach

6. Smaller express or high frequency stores7. Think Global, act localGlocalization

8. Branding emphasis

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Top 250 retailers had $3.62 trillion in 2008 sales (+11.4%) and 3.7% margin, but this

years global crisis has seen flat sales, bankruptcies, and private label growth


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Retailers cutting costs

as the only way to maintain profitability:

Consumer spending is down with their net worth

Retailers focusing on core business

Retailers evaluating most effective formats

For the future

Retailers consolidating support functions Retailers negotiating leases and better deals

with suppliers


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Risk Mitigation across the board

due to financial markets disruptions:

Currency market volatility

Supply Chain disruption

Diversification of sourcing

Natural/man-made disasters

Need to reduce leverage


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Retailers focusing on shopper experience

Better store layout or design

Better Customer service

Improved/greater product assortment & information

Increased focus on shopper insights


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Better management of human resources

Training and selection

Ways to motivate

Reduce turnover

Raise productivity to compensate for cuts

to the payroll

To reduce expatriate deployment


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Multi-channel approach

Consumers increasing cross channel shopping

Internet and store retailing coming together

Manufacturers increasingly turning to the internet

Need to integrate consumer offers across channels

S


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Smaller or express stores

To serve niches

Address consumer need for shopping convenience

Manufactures recognizing potential for high frequency stores

Better suited to emerging markets as

Retailers globalize

Thi k l b l l l Gl li i


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Think global, act local or Glocalization

Retailers have been slower than manufacturersto Globalize but:

Top retailers have about 25% in sales

outside their home markets

Eight of the top ten operate in at least

seven countries The top 250 retailers account for $3.62 trillion

in sales in 2008

Margins have remained stable at 3.5% Format diversification and supply chain

Strength has been key to success

B di i t t


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Branding ever more important

Only two ways to succeed in todays market conditions:

Lower costs and prices due to most efficient supply chainsor economies of scale

Focus on managing brands and the consumer experience

(Least successful are those with uncompetitive prices and

undifferentiated shopping experience)

W l t S l G th $ Billi


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Walmarts Sales Growth--$ Billion

401

20062005

281

309

2007 2008 2009

Current years flat salesshould not blind us to

long-term trends

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374

CAGR 9.3%

Mega-retailers


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gwill Dominate Consumer Product Retailing

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Winds of Change


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gin the Consumer Products/Retail Industry

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Competitive Spectrum TargetedMassGro

wthandperce

ivedconsumervalue

Consumers seek lowcost for basic goodswith low emotionalinvestment

Megaplayerscapture marketshare by deliveringgood enoughvalue at very lowprices

Consumers seek

greater personalvalue whenpurchasing goodswith high emotionalimportance

Differentiatedspecialists buildprofitable niches bydelivering relevantvalue to targetedgroups of consumers

Undifferentiatedcompetitors fadeinto irrelevance

Technology Trends


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Technology Trends

Data Warehouse Appliances replacing Corporate Data

Warehouses

Integration of Category Management with Customer Relationship

Marketing

Collaborative Planning & Forecasting

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Retailer Data Warehouses


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Retailer Data Warehouses

Manufacturer Data Warehouses


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Manufacturer Data Warehouses

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Japan

Japan

Japan


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Category Management Focus


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Category Management Focus

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Portfolio Management Strategies

Customer SegmentsCategory Roles

DestinationDestination

$

$

$

$

Preferred/

Routine

Preferred/

Routine

Occasional

Seasonal

Occasional

Seasonal

ConvenienceConvenience

$

$

$

$

$

$

$

$

$

$

$

$

Loyal Customers

Split Customers

Infrequent Customers

New Customers

Marketing Strategies Driven by Category Roles Optimizes Category profitability and GMROI Balanced Scorecard critical to build customer equity.

Customer Management Focus


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Customer Management Focus

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Consumer Segmentation Strategies

Customer Segments

Loyal Customers

Split Customers

Infrequent Customers

New Customers

Marketing Strategies Driven by Customer Segment Goals Differentiates customer value proposition to maximize customer equity Balanced scorecard needed to optimize profitability

Category Roles

DestinationDestinationPreferred/Routine

Preferred/Routine

OccasionalSeasonal

OccasionalSeasonal

ConvenienceConvenience

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $



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WeeklyOrders &

Forecast Updates

Store/SKUSales Forecast

SupplierGenerated

CRP

Suppliers WH Retailers DC Retail Store Consumer

Full EDI ofinvoices,billbacks,

coupons, fundstransfers

ElectronicPOS basedConsumerPromotion

& Joint NewProduct

Introduction

FrequentShopperDatabase


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Implications For Industry Participants

Implications for industry participants


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p cat o s o dust y pa t c pa ts

1. Differentiate from competition

2. Offer customer experience that excites

3. Improve Infrastructure for collaboration

4. Focus on building strong brand equity

5. Build direct links with the consumer

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The current crisisshould be turned into an opportunity!

Differentiate From Competition


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p

Critical for long term survival:

Retailer strategy should be low price or differentiation based

on product, quality, or service

Retailers should manage private label without diluting

stores brand image

Manufacturers should focus on product innovation and

quality/price gap vs. private label

Manufacturers should build sustainable

Partnerships with leading retailers


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Improve Collaboration


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p

as the market/technology trends are making it critical:

Protecting margins through cost cutting is essential forsuccess

Category & Supply Chain management can take costs outof the value chain

Information & Communication technology cost continue todecrease

Glocalization is facilitated through collaboration

Build Brand Equity


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is key to both retailers and manufacturersto sustain consumer loyalty:

Cross channel shopping behavior is on the increase

Product innovation continues to be the best way to avoidcommoditization

Shopper insights to win the purchasing decision buildsbrand equity

Build Direct Links With The Consumer


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Through internet shopping and mobile couponing:

Internet shopping continues to grow faster than storeretailing ($178 billion in 2008 versus $87.5 billion in2004doubled in 4 years)

Major retailers integrating internet offering with in-store

shopping

Major manufacturers offering coupons through theirwebsites and links through retailers

Manufacturers developing direct to consumer Ecommercecapabilities

Implications for Category Management


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Retailers must focus much more on store level Category managementto influence consumer channel selection and in-store purchasebehavior.

Manufacturers must improve in-store merchandising andunderstanding of shopper insights in their Category Managementpractices

Syndicated Data providers should increase trading area and store levelmarket research offerings

Category Management is ever more important in todays crisis as

collaboration to improve topline is critical to long term survival

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Future of Category Management

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