HED 460

Efficient Consumer Response Efficient replenishment Systems, EDI Fewer stockouts Efficient promotion Promotions based on consumer demand Lean inventory to support promotions

HED 460 Efficient Consumer Response Efficient assortment Turnover Profit Enhances brand and retailer perceptions Efficient product introduction Pull strategy for new products Based on unmet needs

HED 460 Category Management Technique used by retailers Product is sub-divided into categories that Reflect purchasing behavior of target customers Are managed as separate business units Supermarkets and mass merchandisers

HED 460 Categories as SBU’s Department is too broad and less strategic categories vs departments Product/brand is too narrow to approach strategically 15-20,000 skus in a store and 16,000 new products/year

HED 460 Category Management Integration of Buying and Merchandising responsibilities Management of price, shelf space, merchandising assortment strategy, promo efforts, replenishment Affects manuf. sales and marketing Team approach between channel members

HED 460 Category Plans Jointly developed by retailers and suppliers Define strategies and financial objectives GM Sales/cu ft.

HED 460 Buying/Merchandising Decisions Responsibilities must be integrated Inventory allocation Space allocation/analysis Customer demand

HED 460 Category Management Goal - Retailer Optimize each part of the store Allocate space that maximizes Gross Margin/unit of space Goal – Supplier To become the lead supplier or channel captain for that category

HED 460 Benefits Increased category sales (5-15%) Increased category margins Assists in creating optimal assortments Reduction of SKU’s in most cases For Mfct., move from trade allowances (push) to trade promotions (pull)

HED 460 Manco example Merchandising of tape products was difficult Different buyers bought tape Solution = tape center Later mailing center Prevented other vendors’ access 19 SKUs to up to 32 feet in office superstores

HED 460 Direct Profit Profitability (DPP) Profit associated with each category Per unit Gross Margin minus all variable costs Procurement Distribution Sales

HED 460 Defining Categories Consider end uses (frozen, chilled, deli fresh) Consider substitutablity (fresh/frozen) Consider complimentary purchase decisions (pasta + sauce) Base decision on how customer buys Same “real estate”

HED 460

Dairy category Displayed by brand name Customers shop by type (low fat, full fat, no fat, fruit) Then individual flavors

HED 460 Ready to eat meals category Type – Chinese, Italian, meat/two vegetables Cooking method – oven, micro, stove Low calorie or regular

HED 460 Defining Categories What products should be included? Beer Category- decisions Shelf beer and cold beer part of total Shelf beer = 1 category and cooler = 2nd Sub category of beer/wine/alcohol Beer as a solution (picnic, party, meal)

HED 460 Roles/Implied Strategies Destination Traffic building Turf protecting Transaction building Excitement creation Cash generating Image creator

HED 460 Pasta Category StrategyExamples Traffic builder Std. Packs of dried spaghetti Transaction builder Parmesan, fresh herbs, pasta sauces Cash generator Lge. economy packs of dried pasta Image creator Filled pastas: ravioli, tortellini…. Excitement creator Fresh, less well-known: stelline….

HED 460 Roles/Implied Strategies Routine/ preferred Transaction building Profit generating Turf protection

HED 460 Roles/Implied Strategies Convenience Transaction building Profit generating Image enhancing

HED 460 Roles/Implied Strategies Occasional/ seasonal Traffic building Excitement creation Profit generating

HED 460 Tactics – Traffic building Aggressive pricing on loyalty products/low margins Media on frequently purchased items Prominent space

HED 460 Case Study - Toothpaste ResultsPreviousCurrent% Diff. Sales12.3m12.64m2.8% Gross Profit1.66m1.52m(8.4%) GP Margin13.5%12%(11%) Turns % Days supply3025.2(16%) GMROI %

HED 460 Leading Manufacturers – CM P & G Kraft General Mills Unilever…Ralston Purina…Pillsbury Quaker…Kellogg’s…Coke

HED 460 Leading Retailers – CM HEB Safeway Wal-mart Ahold Kroger Wegman’s