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Category Management Definition
What we call ‘Category Management’ today developed from the concepts that underpin Efficient Consumer Response (ECR). This looked to increase the level of services to consumers through close cooperation among retailers, wholesalers, and manufacturers.
There are a few formal definitions of it, which can lead to some ambiguity. However, most contain the central theme that Category Management is about better meeting the needs of the consumer through supplier collaboration. Below are some examples:
What is category management?
For us at MBM, we see Category Management as an essential activity. We like to view it as a three-legged stool. It keeps the shopper, retailer, and supplier at the heart of all decisions. In fact, we see it as a ‘business as usual discipline’ that maximises every stage of the process. Our simple summary is:
Identify more opportunities. sell more opportunities, land more opportunities
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What is CPG Category Management?
CPG stands for Consumer Packaged Goods. Also known as FMCG, or Fast Moving Consumer Goods. These are products that are fast moving and low cost. These are typically products that have a short shelf life, either as a result of high consumer demand or fast deterioration. CPG/FMCG goods are meats, fruits, vegetables, baked products, and dairy products. Therefore CPG Category Management is basically the skill of managing a group of these products within a retailer, in order to meet the shopper’s needs best.
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The Benefits of Category Management
Historically, categories would contain lots of brands from different suppliers. The situation would arise that every time brand X promoted its products, the sales of brand Y would go down. One benefited at the expense of the other. They were competing with each other. There was, however, no net gain for the retailer, only cannibalisation.
Category Management Example:
For instance, Brand X sells 100 units per week. Brand Y sells 100 units per week. So, the category sells 200 units per week. Brand X promotes, the following week, and gains 50 units, thus selling 150 units in total. Brand Y does not promote and loses 50 units to Brand A, selling 50 units in total. The category has not gained from the promotion and still sells 200 units, despite the promotion of Brand A.
Retailers recognised the need to grow their own business and to better meet consumer needs. To do this they needed to change the way they worked with suppliers. This is where Category Management comes in. A key premise is that all activities need to be beneficial to the retailer and shopper. Not only of benefit to a single supplier. For example, promotions, range layouts and new product development (NPD) / existing product development (EPD) have to be in the interest of all.
A further advantage came from working with the supplier base. The supplier’s vast knowledge of the category could be pooled. Lastly, suppliers can share and help manage some of the workload in growing categories. This frees up retailers’ resources. At its core, Category Management is about improving results through retailer and supplier cooperation which, in turn, creates greater value for the customer. As mentioned earlier, it’s a three-legged stool:
The shopper, supermarket and supplier
Concerns Surrounding the Process
A key feature of the Category Management process is the close relationship between supplier and retailer. This, however, has led to fears that they might work in ways that aren’t providing the best value to the customer. The concern is, that, by working so closely together they might undermine some of the principles of free markets. In the UK, there are strict antitrust laws in place to promote competition and prevent cartel behaviour.
In 2007 some major supermarkets fell foul of these following their pricing practices earlier in the decade. They were found to have worked with their dairy suppliers to fix prices. They added an extra 15p onto the price of butter and cheese and 3p on milk. In all, it is thought to have cost consumers an extra £270m. This action was judged to be in breach of UK competition law, where business work together in a way that harms the customer. They were given a £116m fine by the Office of Fair Trading.
This, however, is notably very rare. Generally, the consumer reaps real and substantial benefits from the closer working relationships Category Management brings.
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What Is a Category Manager?
A Category Manager looks to maximise the profit of the specific ‘Category’ that they look after. In essence, the role of the Category Manager is all about driving sales. To do this, they will need to have good analytical skills to assess complex shopper data. They also need to be able to translate that data into meaningful information. This should help further the profitability of their category, the essence of Category Management. In doing so, they will also be better meeting the needs of the consumers that shop the category.
The Category Manager is an expert. They have in-depth knowledge regarding the specific group of products that make up their category. Furthermore, they have overreaching accountability for its successes and failures in terms of sales.
A key part of Category Management is to use their specialist knowledge to work with retailers. Retailers can benefit from their depth of understanding. They can draw on their pool of data to help understand how consumers shop the category. In turn, they will look to make sure that their products are placed and presented in the best way in-store.
What is a Category Development Manager?
The lines between an Account Manager and a Category Manager are becoming blurred. A Category Development Manager can either be a person that focuses on managing the account. Some companies choose to separate the National Account Manager and the Category Manager, others blur the lines. The titles are almost irrelevant. The key is that both the supermarket and the shopper’s needs are met because achieving both of these needs will deliver the best performance.
What is a Category Executive?
A Category Executive is a person that is learning the ropes of Category Management. They are more junior than a Category Manager. The responsibilities of a category executive are predominantly category analysis. They will analyse the data to identify opportunities, which they will then share with the Category Manager. The Category Manager will then guide them further. Category Executives support the Category Manager to achieve their KPI’s. A great Category Executive learns what a great Category Manager does, and aims to become that as soon as possible.
Category Manager Salary
According to Glassdoor, pay for Category Manager jobs in the UK varies across regions. The range is £34,000 – £69,000. Currently, the national average is £45,675 a year.
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The Role of the Category Manager
What Do Category Managers Do?
The Category Manager is the person who builds a close working relationship with the customer, the retailer. This allows them to give useful consumer and category insights. Their main task is to be the key influencer of category strategy and tactics.
Their key role is to recommend strategies and activities which benefit the whole category. As earlier noted, categories are treated as stand-alone strategic business units, consequently, all actions taken should benefit the overall profitability of the category. Through the use of data and analytics, strategies should always look to deliver overall category growth. Furthermore, their efforts should have a positive impact on shopper satisfaction.
This may include:
- Changes to the assortment.
- Pricing recommendations.
- Range reviews.
- Develop new point of sale (POS) materials.
- Revamped planograms.
Category Manager Responsibilities
Below, is a list of some of the other key responsibilities of Category Managers:
This is to consider new lines, seasonal lines and new consumer trends. This is important to maintain category growth.
Review of Rate of Sale
Reviewing the rate of sale (ROS) will help ensure that the range is profitable and includes the best-selling lines. Moreover, it should also deliver consumer choice. Consumer choice should be at the core of all Category Planning decisions.
Track Customer Loyalty
Key metrics of customer loyalty need regular monitoring. These will include:
- Repeat purchases.
- The frequency of purchase.
- The weight of purchase.
- Product penetration.
- Switching analysis.
Ensure Space Optimisation
This means avoiding out of stock products and maintaining a profitable product assortment.
Execute a Fixture Strategy with the Retailer
This will focus on visual merchandising, considering, flow, brand blocking and multi-location siting for products. All fixtures need to be easy to shop and be profitable.
Analysis of Promotional Activity
This is to understand the most effective mechanics in driving trials and sales. This involves the tracking of sales and promotional support by stock keeping unit (SKU). It is important to make sure that they complement each other. For example, SKU ‘A’ may have a higher share of promotional support than it makes in sales. Reallocating some promotional events to other SKUs could add positive sales to the category, increasing usage and penetration.
What is Category Analysis?
Category analysis is the skills of analysing a category. Lots of people have the skill to analyse data. Effective category analysis aims to identify opportunities that provide a win for the Shopper, the Supermarket and the Supplier. Many Category Managers analyse the category, yet they only regurgitate the data onto Powerpoint slides, which they then present to their Buyers. Effective Category Management requires the Category Manager to spend a lot of time analysing the category to identify opportunities, and then presents not all their ‘workings out’ but why the opportunity should be seized.
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What Is a Category Captain?
What is a Category Captain?
As discussed earlier, each retailer contains many categories. In fact, the average UK supermarket could contain as many as 100 categories. To maximise sales, each category needs to be actively promoted. Understandably, however, the retailer doesn’t have a huge depth of knowledge (and analysis) of the intricacies of each category’s product or brand. They, therefore, outsource this to an expert. This is where the ‘Category Captain’ comes in.
Typically, the Category Captain, or as it is sometimes called ‘Category Champion’, is a leading manufacturer or supplier within the category. For instance, for ‘Breakfast Foods’ the appointed Category Captain could be The Kellogg Co. Or, for ‘Packaged Beverages’ it might be Coca-Cola or PepsiCo. They are appointed by the retailer for their ability to manage a specific category. This is often regardless of their size or turnover. It is, however, due to a particular skill and expertise in identifying, coordinating and delivering opportunities.
By appointing a Category Captain to lead the category, the retailer benefits from their in-depth category knowledge. Furthermore, they will often take the lead in broader aspects of Category Management. This may be by coordinating and managing promotional plans or overseeing larger more in-depth category wide plans.
Other advantages include:
- Existing investment in consumer research.
- Detailed knowledge of pricing.
- Knowledge of the correct products to offer e.g. sizing.
- Extra insight for in-store displays and presentation.
- Knowledge of inventory and forecasting to ensure products are always available.
Typically, they are the eyes and ears on the high-street for the buyer. They are often their first port of call.
Find out more about Category Captains at The Shopper Insights & Behaviours & Winning Category Management Conference:
Shopper Insight Conference
In one day, 22 leading shopper and category professionals from M&S, Sainsbury’s, Co-op, Coca-Cola and more explore shopper-centric, insight-led and profitable shopper marketing, activation and Category Management. Download the brochure.
What is a Category Specialist?
Within Category Management, there are two types of category specialists; people and companies. A person that is a category specialist is someone that focuses on one category long term. For example, a supermarket wine buyer would be one. This person is likely to work in wine for most of their career. A company category specialist is a company that focuses on winning that category. For example, Toys R Us wanted to be the place for families to buy toys, or Staples (Office Depot) want to be the place for office equipment and stationery.
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The Category Management Process
Category Management is a structured and data-rich process. It is about organising categories into independent business units. Furthermore, it provides a framework for retailers and suppliers to work together. The results being, greater profitability, efficiency and added value for shoppers and customers.
The Category Management 8-Step Cycle
The most famous model for Category Management is the 8-Step Cycle. It was originally developed by Brian F. Harris with the Partnering Group in 1997. Sometimes called the ‘Brian Harris Model’, it is a formal and structured category plan or set of actions to follow. The model has evolved over the past two decades. You can find it in different forms where it has been adapted, and the name sometimes varies between ‘process’ and ‘cycle’. In addition, some Category Managers follow a five or six step category plan. Nonetheless, most of the key elements are included, as we will discuss further below.
The Category Management 8 Step Cycle
Step 1. Define the Category
A category should consist of products that serve the same or similar purpose. They will likely belong together in the minds of the consumer. Effective Category Management requires Category Managers to, therefore, consider how consumers shop the category when defining it.
Category Planning is about increasing the overall profitability of the category as a whole. Within the individual category, some items will deliver different levels of profitability. They will also need to meet different consumer needs. We, therefore, need to develop subcategories to further break it down. This allows for the execution of different strategies.
Let’s consider how this works in the ‘Soft Drinks Category’ for a moment. Below, is a list of some of the subcategories:
- 150ml cans for fast consumption.
- 330ml cans for sole consumption immediately.
- 500ml resealable bottles for when you’re on the go.
- Low (or zero) calorie vs standard.
- Reduced sugar vs standard.
- 1.0l / 1.5l / 2.5l bottles for sharing with the family at home.
- Larger bottles for parties or special occasions.
- Multipacks for packed lunches.
- Limited editions and seasonal.
This is an example of how all of these subcategories of the soft drinks category might look on the shelf:
subcategories on shelf
Read an expert guide on merchandising from our friends at Sodalite.
Further Examples of Category Management in Retail:
Let’s now think about the ‘Cereals’ category. Retailers may segment Cereals into one of the following:
- Hot v Cold Cereals, where usage, or season, is important.
- Adult v Family v Child, where the emphasis is on the consumer, and packaging is the priority.
What Does ‘Business Category’ Mean?
A Business Category is a group of products within a supermarket/retailer. Categories are defined by the business in order to make Category Management easier. The proper way to group products is by how the shopper/customer sees those products. For example, if a shopper shops fruit, they group fruit into ‘every day’, ‘special’ and ‘other’. Therefore the categories are those 3. The supermarket should then manage those as categories, ensuring that products within those categories are not promoted at the same time.
Challenges for Category Managers
Challenges can occur for instance, where Categories could not, logistically, sit together in the store. For example the ‘Milk’ category, this seems an easy and obvious category to define. Yet, it poses a logistical problem, fresh milk, which needs to be chilled and UHT milk which needs storing at ambient temperature. Typically, this is resolved by creating a ‘Super Category’, such as ‘Milk’. This is then further segmented into ‘Fresh Milk’ and ‘Ambient Milk’.
Another challenge might be the concept of a ‘World Foods’ aisle in the store. This clearly takes into account the consumer decision tree. It follows the thought process many of us take when deciding upon an evening meal. For instance, choosing between a Chinese or Mexican meal. Presenting them side by side responds to research in this area.
Furthermore, defining a category can become tricky when deciding on lines to include. Consider ‘Snacks’. This is often segmented into crisps, snacks and nuts. It is then further divided into single packs, sharing packs and multipacks. Clear definitions are critical to the strategy for the category. For instance, retailers and suppliers will look at, in detail, the size threshold for when a single pack becomes a sharing pack. Or, for that matter, whether, Pringles is a crisp or a snack.
Step 2. Assess the Role of the Category
Now that we have defined the category, it is necessary to decide its role. It is important to consider how the category will work in-store, and how it fits with the retailer’s whole portfolio. Moreover, assessing the role of your categories and how they relate to each other in-store will aid in understanding the total basket profitability of your customer. It is important to check the potential profit margin for both the retailer and the supplier. All efforts surrounding the category should be consistently contributing to its purpose or ‘category role’. This is important to ensure the efficient allocation of resources, that resources go to the most deserving categories. For instance, categories with large share and/or positive outlook and/or capable of driving footfall in store.
The following are 4 types of consumer-centric category segmentation. These can be used to help assess the role of the category:
This is one that drives footfall into the store and will be a deciding factor in the choice of a store by a consumer. For example, a store that is well known for excellence in its fresh bakery, sandwiches or a range of beers. These may not be highly profitable categories but have a significant investment in them by the retailer and supplier. In areas, such as range, space and availability, it can enhance consumer loyalty to the store and deliver consumer traffic. These Categories will tend to be 5-10% of the total category count.
These account for 50-70% of the categories. They are the regular, frequent use, products. For example, milk, snacks, bread, biscuits, confectionery, coffee, and tea. These are the categories which compete heavily in terms of price, space, and promotions.
Convenience categories account for 10-20% of categories. Generally, these have less space in-store and fewer promotions. These complete the retailer’s assortment of products. Typically, these are products not usually found on a routine shopping list. However, this category aims to guarantee a one-stop-shopping experience. Furthermore, its premium pricing plays an important role in enhancing margins. Categories such as shoe polish, greeting cards, and electricals are typical examples.
These account for 5-15% of the store offering and, by definition, have a seasonal bias. This will dictate space, range, price, and promotions. For example, ‘cereals’ will adjust in favour of porridge in the winter and revert to ‘ready to eat’ (RTE) cereals for the rest of the year.
Another aspect of Seasonal Categories is, for brief periods, that they become ‘Destination Categories’. Take, for example, fireworks on November 5 (in the UK), or roses on Valentine’s Day. This can also generate sales in Core Categories for reasons of consumer convenience.
Step 3. Assess Performance
Category assessment is the periodic review of categories and subcategories. It is a regular appraisal of the current performance of the category. This step involves evaluating retailer sales data. This will help decide the sales, share, and profitability of the category. Furthermore, you will need to do an in-depth analysis of key competitors.
As a starting point, perform a detailed SWOT analysis. This will show useful category insights. For instance, where more investment may yield greater profits. You may, for example, discover that focusing on innovation or adopting an aggressive pricing strategy could help. Furthermore, you may discover that re-categorisation is necessary. A recent example of this is the introduction of the ‘Sugar Tax’ in the UK. A re-categorisation of soft drinks may be necessary to adapt to the changes in legislation.
Suppliers will play a major role in this analysis. They often bring data-driven evidence from agencies such as Kantar, Nielsen and IRI. They will also have access to shopper research and retailer proprietary data, such as Dunnhumby or Wal-Mart (Asda) Retail Link. This is for their own lines only. Note, ‘Category Captains’, however, will have access to the full service.
The insights gained from this part of the Category Management process are significant. The data is rich and highly detailed, providing information on:
- Top sellers.
- Top profit generating lines.
- Out of stocks, and quantification of lost sales.
- Basket analysis (e.g most common combination of products in the same basket).
- Top, and worst, performing stores.
- Time of day analysis (e.g when is the peak selling time for a product?).
For further insight, take a look at our helpful and effective Category Management Tools to help identify the size of the opportunity for your category.
Step 4. Set Objectives & Targets (Scorecard)
Following category assessment, the next step is to set achievable and measurable goals for, sales, volume and margin.
This information should be tracked in a Category Scorecard. A very common document within FMCG suppliers. It will help you track:
- Volume Sales
- Product Assortment
Step 5. Devise Strategies
Which strategy is right for each category to meet its goals? The process is circular in nature within this part of the business process. The supplier and retailer are building strategies which, in turn, determine the category role.
Here are seven strategy examples:
Traffic Building Strategy
This lends itself to ‘Destination Categories’. The aim is to attract the consumer into the store – and for them to buy from the category. However, this strategy is also used to attract consumers to ‘Core Categories’. This is because, price sensitivity, promotions and frequent purchasing benefit from shopper traffic. The most obvious example is petrol. It draws consumers from a wide area. They can then shop in the parent store.
Turf Protecting Strategy
This is about defending existing sales and market share. It is in response to competitor activity and is in its nature a reactive strategy. Consequently, it has ramifications for profit margins. Therefore, it is used as a last resort. Nonetheless, it is important for the perception of the store and it also maintains (a level of) competitiveness.
Transaction Building Strategy
Used to quickly build sales of a particular category by selling larger volumes. The goal is to drive up the average weight of purchases per visit. It is achieved through packagings, such as multipacks and larger packs. Also through aggressive pricing and promotions. Examples would be, ‘Core Categories’ such as ‘Crisps’ and ‘Soft Drinks’.
Profit Generating Strategy
This strategy emphasises the high margin categories or subcategories, which also command high consumer loyalty. They are, therefore, less price sensitive. This, for example, may include a retailer’s ‘Own Brand lines’.
Excitement Generating Strategy
The strategy is about creating excitement in a category, or subcategory. Often by innovation, or tapping into a relevant and current social trend. Typically, this falls into the ‘Seasonal Category’. For instance, new flavours of ice cream introduced during a hot spell. At times, this can also fall into ‘Core Categories’. For example, ‘named’ cans of Coca-Cola or limited edition of chocolate bars.
Cash Generating Strategy
The focus here is on large volume, high turnover categories. Those that bring balance to the retailer’s cash flow.
Image Enhancing Strategy
This strategy focuses on the intangible aspects of the retailer offering. Those that improve the overall image and engender loyalty. For instance, quality, variety, price, service, convenience, presentation and delivery.
Step 6. Set Category Tactics
Category tactics are the tools in your planning toolkit. They enable category strategies to be fulfilled. These include:
The supplier, particularly the ‘Category Captain’ will be expected to lead the data analysis. This helps them to decide the level, frequency, and timing of tactics. Furthermore, it will also depend upon insight from agencies such as Nielsen, Kantar, and IRI.
The adoption tactics will vary by retailer, by store and SKU. For instance, an SKU may have a ‘Destination Category’ in one retailer, and ‘Convenience Category’ in another.
Step 7. Implementation
This is arguably the most important step of the Category Management process. That is because it involves executing the plan that you have already developed in steps 1-6.
This is where the planogram comes into play. The planogram is a computer-developed diagram showing retailers where and how to display category products at individual stores. It is, in fact, the embodiment of Category Planning and is the most effective method for executing the plan in-store. It ensures the correct mix of products, with the correct adjacencies, are implemented. Furthermore, the planogram also ensures that it is at the correct price where shoppers interact with the category.
Maximise sales by implementing a good planogram
Merchandising managers will often manage a team of space planners to create the plans. Alternatively, they will outsource to merchandising companies with display optimisation experience. Their role is to maximise the return on shelf space. They will also consider ease of shop. Consequently, the goal is to make the shopping experience more pleasurable and less stressful. This is achieved by following industry standard space planning principles, such as:
Examples of Industry Standard Space Planning Principles
- Merchandising by product subcategory.
- Displaying cheapest to the left.
- Positioning large products on the lower shelves.
Accurate implementation of the plan is important. It is key to make it as easy as possible for store put in place. Imaged plans with product images sourced from companies, such as Brandbank can help do this. It is also possible to take the planogram one step further and use virtual reality technology. Using VR can help to improve planogram legibility. Many merchandising managers agree that this approach increases in-store compliance. After implementing category plans, the retailer now monitors the profitability of the category. Now ‘Canned Soup’, for example, is treated as one unit. Each brand is no longer considered in isolation.
Step 8. Review
The 8-Step Category Management process requires regular review, and changes, where necessary. This is because it is important to keep up relevance in a changing business environment. Furthermore, category dynamics often change. Strategies and tactics need to adapt to stay competitive. As a result, this is a critical stage of reflection and analysis of earlier assumptions.
A review of successful Category Planning would expect to see:
- Cost reductions through supply chain management, such as, out of stocks and wastage.
- Improved consumer satisfaction. For instance, availability and ease of store navigation.
- Increased market share, versus competitor retailers.
- Increased sales and improved margins.
In our interview with Mark Taylor, the author of ‘Who Killed Category Management’, below, he discusses some fascinating limitations of rigorously following the traditional process of Category Management: