The term “category management” has been common currency and business practice in the retail industry for almost three decades. It was introduced in the U.S. market in 1990 by Winston Weber & Associates, at a time when retailers purchased products by supplier, instead of by category, and when product variations and introductions were proliferating beyond the capacity of existing shelf space. With category management, technology and analytics could be applied to these challenges, prescribing formulas that would optimize several objectives—sales, margin, inventory, cost, speed-to-shelf, and shelf-space productivity—at the category level, versus maximizing objectives and SKUs in isolation of each other. In addition, the approach provided an opportunity to integrate tactical merchandising decisions—assortment, pricing, promotion, and presentation—around cohesive strategies. The approach was built around a portfolio framework, requiring prioritization and balanced role definitions that could act as a material extension of how the retailer wanted to brand the store and image.
Category management made demonstrable improvements across the industry after its initial introduction. However, in today’s rapidly changing business environment, the term typically carries the impression of “yesterday’s news.” The case for change is compelling.100 percent of both retailers and manufacturers surveyed say that they believe some degree of change is required, with 25 percent indicating that an entire redefinition and transformation is necessary.
85 percent of retailers have made either “no change” or “moderate change” to the initially prescribed category management process. When one considers breakthroughs since the mid-1990s in such areas as electronic data exchange, web-based applications, in-store technology, supply chain innovations, loyalty analytics, shopper marketing and monitoring, precision replenishment, and all the manifestations surrounding the word “digital”, it is quite clear the industry has no choice but to move beyond category management.
It is true that today’s category management approach does not preclude the use of shopper insights. On the other hand, it does not place sufficient emphasis on the importance of understanding the shopper prior to developing a plan. In addition, the assessment step and all the steps that follow it are still confined to a single category or category cluster. In the final analysis, has category management (as practiced throughout the last 29 years) won battles on the category front, but lost the war on the shopper front? Several trends suggest the product-focused approach has fallen short and will likely continue to do so. The following three trends demonstrate the point:
Retailers and manufacturers give themselves very low grades in their ability to apply digitally based consumer and shopper data in category planning. Yet, big data has great potential in guiding marketing and merchandising decision making. When properly understood and defined, all the dimensions of the digital age—mobile devices, social media, cloud computing, and data analytics, which are accelerating and converging into ever-new forms—have the potential to unlock the “why” of shoppers’ decision-making
processes versus answering only the “what”. Perhaps the most compelling aspect of this opportunity is the fact that the pieces of the puzzle are available to the industry now, with today’s technology.
One current constraint is the industry’s capacity to discover inventive ways to harness and translate the technologies already there into quality insights. Those who get there ahead of the others could achieve the shopper-centricity retailing vison described in this report. Survey results reinforce our own practice experience in that the migration to true shopper-centricity will require comprehensive and significant change, as well as an industry-wide commitment. This change can create an enhanced consumer shopping experience along the path to purchase. It could also enable companies to differentiate themselves from competitors who do not offer the same experience and capabilities.
In today’s environment, the eight step category management process has too many limitations and is no longer positioned to produce the intended results. The following issues illustrate priority areas in which change needs to occur:
Retailers must evolve from the 29+ year old category management to the new Shopper-Centric Retailing business model, with its core Shopper-Solutions Planning process. Suppliers must follow and adapt accordingly.
By Win Weber, Chairman and CEO, Winston Weber & Associates, Inc.