Category management: Are you misusing it?
Category management can be a powerful tool for business growth—when applied factually and insightfully. You might wonder, “Isn’t category management always a factually applied process?” Surprisingly, that’s not always true in retail.
The outcome depends on your objective. Are you looking to use category management in its purest form? Or, are you looking to increase sales?
Using category management in its purest form.
I’ve often seen buyers frustrated with their category captains and leaders. Despite following what appeared to be the correct process, category performance fell short, and market share gains didn’t materialize. What went wrong? Did they stray from the factual process? The category management process is technical and should logically produce results.
Upon closer examination, manufacturers often exert undue pressure on the category manager or captain, leading to suboptimal category performance. What kind of pressure? Consider these examples:
“We have too many products in excess inventory, so we need to place them on the planogram to move the inventory.”
Hello???? They are in excess because consumers don’t want them!
“Just remove a similar item from the competition and put ours in. It won’t matter.”
But what about consumer preference and loyalty?
These examples highlight the critical need for category managers to report to a non-sales function to ensure unbiased decision-making.
The retailer’s strategy and directives are paramount. Here’s a funny story: I once visited a food retailer with a team of 10 people from management, leadership, marketing, and category management. During the meeting, the retailer asked, “Who here has a sales target or budget responsibility?” When nine people raised their hands, the retailer asked them to leave, leaving only me.
This strict separation of sales and category management should always be maintained, particularly if both the retailer and manufacturer are committed to a pure approach. Many retailers, including Target, Walmart, and Kroger, strictly adhere to this principle.
Are you looking to use category management to boost sales?
Absolutely! When applied correctly, category management significantly improves sales performance and increases overall market share for both the retailer and manufacturer.
Let’s focus on a part of the eight-step process and highlight some key considerations. (Assessment of current performance)
After a category’s role and definition, we must understand the category’s overall performance by analyzing national category data, ROM (Rest Of Market that doesn’t include the subject retailer), and the subject retailer performance. This analysis requires more than a superficial overview: it demands a deep dive into the UPC level. Achieving this insight requires proper strategic alignment with the retailer, especially for coding purposes. Manufacturers must invest in data. Without it, there are no insights and no seat at the table. It is that simple.
Properly coding the data is imperative before analysis, as retailers often categorize products differently than syndicated data providers like Nielsen and Circana. The optimal approach uses a data gateway, where Nielsen or Circana jointly releases data with the retailer, categorizing it according to the retailer’s preferred format. These gateways encompass POS data, operational data, and consumer loyalty data—but that’s a discussion for another day.
Once you have the accurate data, make sure you possess the appropriate metrics and are interpreting them accurately. A crucial aspect to focus on is velocity measurements.
Let’s examine one: dollars per store per week. There are two ways to calculate this:
- The operational person divides the product’s sales by the planned store distribution and then by the number of weeks sold. This approach often results in a watered-down average.
- A more accurate method divides the actual sales by the number of stores that sold the item, then by the number of weeks sold. This method provides a much more precise measure.
We need to consider a few other facts in these calculations. Were there out-of-stock items during this timeframe? Was a new item launched but only scanned half the time.? Once you account for these factors, you can determine which items outperform others.
At the simplest level, when you naturally replace underperforming items with better-performing ones, sales will grow. There is much more that needs to be addressed in the process but that is for another time.
At See Klear, we understand the complexities of category management and are here to help you navigate them successfully. Whether you’re looking to optimize your product assortment, improve shelf space allocation, or enhance your overall sales strategy, our team of experts is ready to assist. We offer a range of services tailored to meet your specific needs, including JBP meetings, category reviews, fair share analysis, space-to-sales optimization, assortment and productivity analysis, item projections, substitution analysis, segmentation, and adjacencies.
Don’t leave your category management to chance—partner with us to ensure your business thrives. Book a consultation today and discover how we can help you achieve your category management goals.
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