Category Management must be replaced …the case for change

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Category Management must be replaced …the case for change

Category Management

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.

No major upgrades have occurred in the past 29 years.

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.

A more shopper-centric approach is essential to understanding and addressing several trends that challenge the industry

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:

  1. Channel Migration: A profound change in the market since the mid-1990s is the 20-plus share-point shift of sales from the conventional supermarket sector to alternative retail formats. This represents the same period as category management’s prominence in the supermarket Despite the improved science and precision applied at the category level, the overall supermarket value proposition was not compelling enough to prevent millions of consumers from moving to a variety of retail outlets with different merchandising formats.
  2. Erosion of Center Store: The merchandising legacy under category management has not been able to stop a pervasive and continuing decline of center store departments. Whether due to defection to other formats or unforeseen shifts in eating and shopping habits, the lack of shopper focus is a reasonable hypothesis as to the industry’s inability to address and reverse this
  3. Emergence of New Food Lifestyles: This is a more recent trend, but the rapid growth in “free-from,” vegan, paleo, non-GMO, local-only, and other proliferating food lifestyles have challenged retailers due to the dramatic pace of These trends, which are clearly inter-category and solution-oriented in nature, represent another impending test to ascertain whether the industry is shopper-centric enough to stay ahead of the consumer. It is difficult to see how this challenge can be met without taking a deeply shopper-centric approach, one that is guided by behavioral motivations versus marginal category-by-category tactics.

The industry recognizes that the vast amounts of quality shopper data and insights existing in today’s business data environment have yet to be harnessed.

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.

What must change

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:

  1. Organizational alignment does not support shopper centricity. Category management does not provide sufficient shopper-centric process and performance- measurement alignment across retailer functions and from the top down to store- level. Specifically, this relates to the alignment of category management and store operations, the two key stakeholders in the process. As a result, implementation continues to be a significant barrier to effective category management. Store execution has been and continues to score 3 or below on a scale of 1-5.
  2. Consumer/Shopper Consumer/Shopper insights subject matter expertise is not defined as an essential first step prior to development of the category plan. This results in a lack of understanding of those factors that are necessary in the development of merchandising solution strategies and tactics that focus on enhancement of the shopping This includes a thorough understanding of who the shopper is, what the shopper is seeking, what information the shopper is seeking before going to the store or on-line, what missions drive them to the store, what other outlets could provide the solution and what other alternatives inside the store could fill the solution need.
  3. The category-management process is too narrowly positioned by focusing solely on a category instead of more broadly on the solutions that the shopper is generally These solutions can often cross several categories and departments, all factors which can influence the effectiveness and ease of the shopping experience. Even the name, “category management,” reinforces this narrowness.
  4. Category roles are not properly positioned. Category role definition is rarely tied with retail strategic planning. The role of each category should be part of the retailer’s go-to-market strategy, based on where investments will be made, where positioning will be created, and where the organization believes it can win in the marketplace. This should be part of an annual process for the retailer, one that is tied to the budgeting and goal-setting
  5. Merchandising solutions skills are not in place. Category management’s primary emphasis on analytics and producing the category plan—without sufficient emphasis on developing creative merchandising solutions—has resulted in a noticeable deterioration in the “art” of merchandising skills across the

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.

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