KSA’S GUIDE TO MANAGING A CATEGORY
Byline: Arthur Friedman
NEW YORK — As retailers and manufacturers struggle to get a handle on changing consumer buying habits, they’re turning to category management to enhance vendor-merchant partnerships.
While the apparel industry is sporadic in embracing the concept of category management, it does have a model to follow in the supermarket business. The grocery industry is considered one of the leaders in brand segment marketing, noted Shaz Kahng, a senior manager specializing in category management at Kurt Salmon Associates, an international consulting firm here.
In the recent “Best Practices Report on Category Management,” prepared by an industry advisory board for the retail and consumer products industries, category management is defined as “a retailer-supplier process of managing categories as strategic business units, producing enhanced results by focusing on delivering consumer value.”
The report further defines a category as “a distinct, manageable group of products or services that consumers perceive to be interrelated and/or substitutable.”
Category management is a critical component of an overall consumer response business strategy, providing core organizational capabilities for managing merchandise and related business processes to meet consumer needs.
With that premise, KSA prepared for WWD a blueprint for category management that can serve as a guide for retailers and vendors who want to establish such a partnership.
The plan, which KSA calls a Foundation of Collaboration, involves seven major steps:
* Agree on level of partnership, ranging from minimal involvement to full implementation.
* Match the retailer’s overall strategy with the maker’s strategy, including consumer assessment, competitive analysis, category definition and pipeline partnership.
* Set category priorities, including selection and sequencing of categories to analyze, grading analysis, assortment planning and product introduction.
* Analyze retailer’s and manufacturer’s performance in the category.
* Develop a plan of action, set goals and define accountabilities. This includes space planning, analyzing market share, price management, promotional planning and performance review.
* Measure and monitor progress.
* Achieve results in sales and margins.
The report examines the following elements: What items should be carried, in what quantities, at what prices, in which stores, where in the store, how much shelf space should be allocated and what level of advertising is required.
According to KSA, the main aspect of category management is that it refocuses efforts from buying merchandise to selling products that provide value to consumers. Categories are redefined into strategic business units to achieve objectives and satisfy customer needs.
The process provides a framework for linking suppliers and retailers. This requires changes in organization, responsibilities and reward systems from a traditional departmental format to an integrated structure.
KSA points out that category management typically requires merging several departments into a single unit responsible for sales and profits. It uses integrated information technology to support planning, buying, merchandising, pricing, promotion planning and shelf management.
Using the technique successfully means understanding why people buy and the company’s ability to meet their needs profitably. This can be determined using demographic, socioeconomic and psycho-graphic data.
The evaluation should explore:
* What type of stores consumers shop in.
* How often they visit the store.
* How much they typically spend per trip.
* How many items they typically buy.
* If they are brand loyal.
* What size they typically prefer.
* How important pricing is.
* How promotions affect them.
Understanding these motivations will lead to a distinct category role definition.
In the grocery industry report, category roles where defined as: “opportunity” goods, which have a low importance to retailers and consumers; “image builders,” which have high importance to retailers, but low importance to consumers; “convenience” products, which have low importance to retailers, but high importance to consumers, and “destination” items, which have high importance to retailers and consumers.
KSA found that retailers and manufacturers must also have the data and systems to support the decisions of category management and improve business productivity. These systems require warehouse inventory and withdrawal, POS, competitive pricing, market level data, consumer preference details, demographic and space management information and a data base to track promotions.
They should also include analysis of trends and new items, the time an item needs to sell, assortment voids, pricing, assortment and space analysis and supply chain management.
The vital element for a retailer in applying category management is to establish a “category captain,” a supplier that will form an alliance with key retailers to help the merchant gain consumer insight, satisfy consumer needs, and improve the performance and profit potential across the entire category.
As an example, Sassco Fashions, the nation’s leading maker of better-price women’s suits, tracks performance for its own brand as well as competitors, to help a retailer manage the department.
In finding a category captain, a retailer should ask the vendor such questions as:
* Do you have a defined and tested category management process?
* What differentiates your company from your competitors?
* How do you define the category and the competition?
* What are your current methods of measuring category performance?
* What are your capabilities in activity-based costing, product handling, inventory management, EDI, consumer insight and logistics?
Finally, a successful category management partnership should establish a “best practices” standard that includes: a focus on the consumer, mutually agreed-upon objectives, information sharing, openness to change traditional attitudes and approaches, multifunctional access and communication, the support of top management, and a shared approach to product development and introduction.