CHAPTER 3 CATEGORY MANAGEMENT

LEARNING OBJECTIVES Introduce category management as an evolving consumer-led approach to retail product management Become familiar with associated product management systems, such as ECR and QR Introduce the concept of a category and the category life cycle Consider the implications of CM for retail buying organisation structures and supply partners Outline the limitations of CM

CATEGORY MANAGEMENT DEFINITION “the strategic management of product groups through trade partnerships, which aims to maximise sales and profits by satisfying consumer needs” (IGD, 1999) KEY PHRASES  a strategically managed product group (defined by shopping behaviour)  relies on trade (supply) partnerships  aims to maximise sales and profits (of group rather than item)

ASPECTS OF CATEGORY MANAGEMENT A philosophy A process An organisational concept

CATEGORY MANAGEMENT AS A PHILOSOPHY Products are considered as a way to satisfy consumer demand Demand-pull rather than product-push (forecasting) Product features and procurement (buying) becomes part of, but not focus of product management process Suppliers are integrated in category management process, some become category champions

DEFINING A CATEGORY A category should be established by the way consumers buy the product Usually products in category are reasonable substitutes for one another (e.g. fruit yoghurts) Sometimes a category is defined by products being complementary (e.g. ‘exotic foods’)

THE ROLE OF THE SKU WITHIN THE CATEGORY When defining the category individual roles of SKUs (stock keeping units, or product items) are acknowledged:  traffic builders  sales and profit generators  excitement creators  reinforcement of retail brand Products without a clear role should be eliminated from category

THE STRATEGIC ROLE OF THE CATEGORY WITHIN A RETAILER’S PRODUCT ASSORTMENT (TABLE 3.2)

PRODUCT CATEGORY LIFE CYCLE The category life cycle is more useful than the (individual product life cycle) to the retail product manager The different phases of the category life cycle have implications for category management

IMPLICATION OF THE CATEGORY LIFE CYCLE FOR CATEGORY MANAGEMENT Insert Figure 3.1

CATEGORY MANAGEMENT AS AN ORGANISATIONAL CONCEPT Category management brings a stronger marketing orientation to product management More cross functional role: tending to reduce the role of ‘buying’ and augmenting the role of ‘merchandising’ More involvement with store level product management, e.g. space allocation, display and in-store promotions A team organisation that spans across supplier’s and retailer’s boundaries (see Fig. 3.3)

THE RETAILER-SUPPLIER INTERFACE Insert Figure 3.3 and acknowledgement

CATEGORY MANGEMENT AND ECR (Efficient Consumer Response) Truly responsive product management requires retailer’s supply chain (as well as retailer’s buying organisation) to be responsive to consumer demand CM is usually part of responsive supply chain management (e.g. ECR)  “a seamless interface from customer purchase to manufacturing schedules” (Lowson et al, 1999: 40) ECR aims to maximise customer satisfaction while minimising supply costs

THE PRINCIPLES OF ECR Insert Figure 3.4

THE SCOPE OF ECR Insert Figure 3.5

INFORMATION FLOW AND DATA TECHNOLOGY Development of ECR has been dependent on enabling technologies Data management and sharing across parties in supply chain is a requirement for ECR Insert fig 3.6

CATEGORY MANAGEMENT LIMITATIONS Category management relies on theory and jargon, many well-run retailers have adopted the principles of CM and ECR without the help of consultants Change in organisation not always possible due to skills shortage Retailers often have difficulty accepting suppliers as partners ‘Efficient’ ranges have danger of becoming boring and looking like those of competition Smaller suppliers can be squeezed out Smaller retailers may not have resources to adopt CM