Category management is a interactive business process whereby distributor and supplier co-create and manages categories as strategic business units, producing enhanced business results by focusing on delivering consumer value.
What is Different?
New and Different Data
Category management practitioners have leverage a tsunami of new data ranging from more granular household panel data to loyalty card data, social media data and finally millions of dollars of new syndicated behavioral and attitudinal data from manufacturers, retailers and third-party providers. The granularity of today’s data permits a store level view and even an individual shopper view of behavior beyond yesterday’s market level view.
Increased Diversity in Shopper’s Universe
As retail formats have diversified, the shopper universe has become much more diverse demographically and psychographically. The combination of retail diversification and shopper fragmentation has driven a perceived need for category management planning at the level of individual store clusters and in some occasions down to the level of individual neighborhood stores.
Success Model
the combination of more data and better analytics has enabled the development of success models in assortment, pricing, shelf merchandising and promotion. As an industry and as individual practitioners we now know what works in what categories and at what cost across a broad range of category management decisions.
Speed of Change
The new data and the various software solutions have enabled thought leaders to keep pace with rapid change. Leading-edge retailers and manufacturers have been early adopters of these improvements but most practitioners lag behind either unaware of the better solutions or unable to adopt them in organizations burdened by rapid personnel turnover and the press of everyday competition.
Shopper Insights
adds the power of “why” people shop to “what” shoppers do when they shop. It also adds the emotional component to the rationale component, drives more robust strategies and makes a stronger sale.
New Analytical Tools
computer hardware and analytical software have gone through several iterations of upgrade. We now have the capability to do sophisticated pricing analysis as well as multi-variant marketing response analysis.
6 Components of Category Management
Category management represents a significant and results proven opportunity to achieve substantial business improvements — both for distributors and suppliers. It requires a commitment, however, from each trading partner to modify strategy, structures, work processes and systems. To make this commitment, top management within a company should understand the potential contribution of category management, recognize the scope of change required, and decide to personally lead their company through these changes.
Core Component: Strategy
Distributors and suppliers that adopted category management into an integral part of their company’s overall strategy came to the following conclusions:
- Commitment of top management is required to lead a change in this magnitude
- Development of consumer, product and functional strategies is required to provide a procedure framework to guide front line implementations and decision making.
- Distributors should manage categories as strategic business units that plays a significant ole in delivering their overall corporate mission
- Category management needs suppliers to develop externally-focused strategies and business processes that enable their categories or brands to align to the distributor’s category roles and strategies
Core Component: Business Process
The category management business process is a structured, measured set of activities designed to produce a specifiec result — development and implementation of a written category business plan. It is a specific ordering of work activities across time and place with specific ordering of work activities across time and place with
a beginning, an end and clearly identified inputs and outputs. The category management business process adopts the consumer’s point of view. It is the structure by which a supplier and its distributor collaborate to produce value for consumers in the most efficient and effective manner.
Enabling Component: Scorecard
The category management scorecard is a management tool that defines, measures and monitors the progress of the category business plan. This scorecard serves 3 purposes:
- Provides discipline and structure to the category management business process
- Influences organizational behavior when linked to reward system
- Facilitates cross-business-unit comparison and the “roll-up” of business unit results to higher levels for strategic and financial assessment and planning.
To achieve its purpose, the scorecard has a balanced architecture that captures traditional financial measures along with consumer and business process performance. Some common scorecard measures: consumer measures, distributor measures, supplier measures etc. It is the communication tool that helps both organizations understand that their decisions/actions are important and are consistent with broader company strategies.
Enabling component: Organizational Capabilities
As category management shifts roles and responsibilities across distributor/supplier organizations and systems, there is clear need for complementary organizational design, decision criteria, skill requirements and reward systems. Therefore, organizational capability becomes a critical enabling component of category management.
Enabling component: Information Technology
Category management is fundamentally a data-driven, fact-based, analysis-intensive business process. Information technology plays an integral role in enabling the necessary reporting, decision making and communication between and within category management working groups.
Given the vast amounts of data available to both distributors and suppliers, the role of information technology also includes the assurance of timely and accurate data acquisition, organization and analysis, plus the conversion of data to actionable information. As a result, common data definitions and standards become a minimum requirement for success.
Enabling Component: Collaborative Trading Partner Relationships
The business building results of category management are greatly enhanced by collaborative relationships between distributor and supplier trading partners. In the past, these relationships were known as strategic alliances or partnerships. By any name, they imply a more open, trusting relationship that harnesses the unique perspectives, skills and resources of each organization to produce a better category management outcome.
The following are some principles that allow collaborative trading relationships to grow in an atmosphere of mutual trust and respect: top-to-top management communication and commitment; a foundation of trust, often based on common measures of success; the capability to participate in multi functional team processes; and the willingness to share key information on a timely basis.