Source: Walmart
Is it time to reinvent category management?
Brian Harris, the “father of category management,” says that it’s past time to reinvent the effort and suggested there’s a need to move onto category management 2.0. Win Weber, another leading proponent, says the retail industry needs to change the way merchandising works because the concept of category management was formed before the internet was commercialized.
It’s not just the internet that wasn’t around when category management came into vogue. Data analytics capabilities were a fraction of what they are today. Data capture and the ability to deliver actionable information to front line employees are now several generations advanced. So how do we reinvent category management with technology that is geometrically more powerful?
The starting and stopping points must be the shopper. The tools are now available to better understand what motivations will drive buying behavior for individual shoppers, so customer-centric merchandising and personalized promotions should provide the pathways to both gain shoppers’ trust and yield proof points with C-level management to commit to a full revamp of category management.
From that base of understanding the customer, category management 2.0 or shopper-centric retailing, as Mr. Weber calls it (we at Precima prefer total store optimization) needs to marry customer insights with product data to create a personalized shopping experience across all customer touchpoints. This is much easier said than done, but companies making the investment in people and technology will see increased market share and profit improvements.
An example of how category management 2.0 works can be seen in the bottled water segment, where consumers see little variation among different brands and 12-pack and 24-pack sizes take up large amounts of shelf space. Armed with shopper-level data about product preferences, retailers can be confident customers will switch their bottled water purchase to the available brands/sizes without being disappointed. With that additional “real estate,” they can expand their assortment to include more facings of healthy lifestyle beverages, which offer greater opportunities for high-margin sales.
Discussion Questions
DISCUSSION QUESTIONS: What are the most important factors for enabling the next generation of category management? Which do you think is more likely: Category management will evolve as e-tailers and suppliers make use of new data management tools or the practice will be replaced in favor of an entirely new, shopper-based approach?
Poll
BrainTrust
Richard J. George, Ph.D.
Professor of Food Marketing, Haub School of Business, Saint Joseph's University
Joel Rubinson
President, Rubinson Partners, Inc.
Next-gen category management needs to start to blend buying journeys into the mix of product/sales considerations. You have to know the customer and what they want. You have to know the product and what it can deliver. You have to estimate both to come up with forecasts, merchandising plans and all the details with it. However, today’s multi-channel and omnichannel shopping also needs category managers to figure out how best to market and sell their portfolio of products across these channels.
Is it more conducive to m-commerce, e-commerce or the full blend — including brick-and-mortar? This drastically affects forecasts, SKU plans, inventory volumes and placement.
It’s a brave new world. All of it comes right back to the shopper’s preference and a shopper-based approach.
Category management can seem like a square peg in a round hole. The simple beauty of category management is that it is selling-focused. Retail continues to be challenged to be customer-centric, which is needs-focused. The chasm of planning and operations between a product push approach and the fulfillment of needs and wants is not about to be bridged too quickly. In fact it will be exacerbated as product manufacturers move more fully into the retail offering of their products, because CPGs and OEMs are truly sales-push focused.
Always good to hear from Brian Harris. At the risk of over-simplifying the concept, category management’s shortcomings emanated from most manufacturers and retailers neglecting the customer and the retailer’s positioning in the process. Category management in whatever space (online or in-store) needs to get back to Brian’s basic premise.
The time is always ripe for change. Fundamentally the concept and methodologies of category management remain very much the same as 20 years ago, however it’s the data inputs and customer shipping complexities that need to be accounted for. These are in the form of attribution, third dimensions of planning and other aspects that will incorporate the multi-channel, digital omnichannel retail model we face day-to-day.
In addition, the rapid emergence of the speed to market, fast fashion and the vertical integrated showroom model necessitate the need for a change, and revisiting how category management can address the new planning universe powered by insights.
Category management helped identify some low-hanging fruit for store improvements. The process has some fundamental errors that will produce misleading recommendations when it is pushed to its limits. Academics have listed many problems with the process, but the industry still needs to apply the fixes. We need to move to category management 3.0 to get those improvements into the system.
Category management started out as “consumer-based” merchandising (we didn’t say “shopper” back then). What sent it off the rails is simply that we ignored the consumer part of the process because it was too cumbersome, too amorphous and we had too little actionable data. So category management became a template-driven real estate grab (if you are a manufacturer) or a template-driven assortment optimization tool (only one step above the old “spin reports” if you are a retailer). All this discussion of reinvention and 2.0 sounds like returning to the original premise to some of us original believers.
First, a lot of the discussion about reinventing category management feels like an infusion of shopper insights that was definitely light in version 1.0 of category management which was heavily sales analysis based. Second, the biggest change in the past five years is understanding that shopper marketing is squarely in the digital and mobile world and the seamless blending of those activities to physical store layout, signage, experience, etc.
I was one of Brian’s partners who “invented” category management. I did all the metrics that knit the process together in 1993.
Last year I led a consortium of 17 companies including Walmart,P&G, IRI, Kantar Retail, Ahold, Mondelez, etc. in creating CatMan 2.0, a 330 page digital document posted on the Category Management Association site. It would be interesting to read these comments after people have plowed through the document. Suffice it to say that we have made remarkable strides in data and analytics. I have subsequently written a white paper called “how e-com will change CPG marketing and the retail experience.” It touches upon some of the comments made on this page. The most important change will be the capability of the retail e-commerce sites to suggestively sell other items (categories) in a need state triggered by a specific purchase in the need state (shopper-centric need state marketing). This is easily done in the digital world but impossible to do in a brick-and-mortar environment. Meanwhile, shopper targeting capabilities increase by the hour as do predictive analytics capabilities to identify and activate valuable households.
Category management is a fast moving train which few have been able to board.
The true innovators are now collaborating, not just transferring the burden of category management from the retailer to the CPG supplier. Yes, they supposedly have been “collaborating” for decades, however in the majority of cases, “The fox has been watching the hen house.” Now we are seeing suppliers and merchants optimize the category assortment mix to the best possible intersection of revenue, velocity and margin. This is taking into account both internal data of product movement, etc., along with external data that follows sources like social sentiment, long-term weather patterns, events, etc. to capture true shopper journey components.
CatMan 2.0 is still the traditional Category Management 8 step process with enhancements to step 4 and step 7 plus an updated vocabulary. That is all it is. The new beyond category management Shopper-Centric Retailing business model, and core component Shopper Solutions Planning, addresses the many limitations of category management and more. The Shopper Solutions Planning component is specifically designed to translate insights into shopping enhancement solutions at the category, aisle, department and total store. The Shopper-Centric Retailing model includes restructuring the management structure of the store to address the age-old execution problem, it breaks down the silo between Merchandising and Operations with a new senior management function, it restructures merchandising to a more solutions focused structure, breaking down the silos between Center Store and GM/HBC, it creates a common shopper solutions focused vocabulary throughout the organization from senior management across function down to the bagger. The narrowness of the word category management is eliminated from the vocabulary.
Yes, this is the beyond category management model. It is the future. Several retailers are at various stages of implementation. More are planning to follow.
This is a good and timely discussion and I’m delighted to be part of it. What has amazed me is that the Category Management idea is over 25 years old since I first made reference to the idea in 1989 at a CIES conference in France. Very few ideas and methods have lasted that long in our fast paced business. Its longevity, in my opinion, has been the result of its simple philosophy and principles. If we understand and think like the consumer (now the shopper and consumer) and share the best possible insights about these ultimate targets of all our work we will make better decisions about how to best meet these needs.
What has changed over the years of course are two things. First the availability and quality of information and insights into consumers and shoppers and how consumer and shopper behavior are connected in an integrated journey. We can now have a clearer understanding of how consumer needs (always the starting point) ultimately end up in category and product purchase decisions made when the consumer becomes a shopper. Second is the rapid emergence of online digital channels as an alternative way for consumers and shoppers to meet these needs.
To me what is most exciting about this is that now we have more tactical tools to reach and influence the decisions of shoppers. In the original Category Management approach, the only tools we had were the traditional merchandising tactics (assortment, shelf presentation, pricing and promotion) all executed in an in-store environment. We simply now have more information and a broader array of tools to understand and deploy as we strive, as has always been the goal of Category Management, to create greater satisfaction and loyalty for our categories and brands.
As my friend Dr. George says, getting back to basics is the best way to start evolving Category Management to take advantage of the new opportunities. Let’s not make this too complicated. If we keep it simple, there is no reason why Category Management, like Brand Management, will not still be a method we are using in another 25 years from now.
Yes! Absolutely! Of course it’s time to re-invent Category Management again. It’s a continuous collective effort that must never be allowed to stop. The all-star roster of contributors attracted to this discussion thread may be all the evidence you need. I’ve enjoyed detailed one-on-one conversations on this topic with many of you here, and I was and remain grateful to you all. For that reason, few of you will be surprised when I toss another crucial variable into the conversational mix. It’s one that’s not represented in today’s RW reader poll. The missing element is In-Store Implementation.
I know invoking the store in a discussion about Category Management in the age of digital commerce may seem like a throwback, but I don’t see how CM 2.0 (or any number) can possibly advance without new and better methods for sensing and measuring store conditions and implementing category plans with near-perfect levels of conformance.
The most pervasive and intractable confound that has prevented CM from realizing its whole potential in 27 years is poor On-Shelf Availability, and this has been driven by an absence of up-to-the minute store-level inventory data and a chronically distorted demand signal. When you know precisely what’s on your shelves every minute of every day, every other quantity that Category Managers try to control gets better. That goes for assortment, space, price, days of supply, promotion, replenishment, shopper loyalty and in-store fulfillment of digital orders.
The good news is the industry has been doing some heavy lifting recently on OSA, and a handful of retailers are gaining ground.
With due respect to the very smart folks who created and contributed to this discussion, I’d like to stake a claim here to the term “Category Management 2.0.” It was the title of my guest column in Progressive Grocer magazine on Nov. 15, 2006. The lede sentence reads, “You can optimize the plan, but can you actualize at the shelf?” I’d be pleased to forward a PDF copy to any RW readers who reach out.
As the services and capabilities around applying data-driven insights from data analytics become better and better for retailers, I believe we’ll see a blending of processes we see today as distinct into something new and more efficient. Retailers will blend their organizations, breaking down silos, and leverage these insights to better understand their customer journey allowing them to optimize product assortments and manage categories all as part of a single task.
Elevating category management requires two key elements: real-time retail and customer context.
Real-time retail is the ability to deliver a holistic experience to consumers whenever, wherever and however they choose to shop by gathering, analyzing and disseminating customer, product, pricing and inventory data across all channels in real-time. Retailers need real-time visibility to inventory, sales and customer information across the enterprise to effectively monitor and manage product categories.
Combining real-time data and analytics with customer context enables retailers to personalize the shopping experience for each unique individual. Customer context, as defined by BRP, is the interrelated factors of customer insights and environmental conditions that make the shopping experience relevant.
With advances in technology (networks, Wi-Fi, mobile, NFC, beacons, etc.) retailers have the ability to access more customer information than ever before and in real-time. Retailers have the ability to know what a customer has in her closet, what she previously purchased, what she browsed on the website and abandoned in her online cart, when she is near the store and even exactly what she is browsing and where within the store. In addition to customer insights, customer context considers environmental conditions such as current and forecasted weather, time of day, time of year, media (news), social media, traffic, holidays, events and other conditions that impact a consumer’s purchase decision.
Great points Graeme! I would say that even though analytics and category management methodologies have developed rapidly over the years, other execution systems have lagged. What this has resulted in is a highly difficult ability to scale strategy around the consumer-centric analysis. A large portion of FMCG retailers in the US still have many mainframe systems in place which pre-date category management origins. What this results in is a lack of capability to execute around a shopper/consumer dimension and general system disconnects across stakeholders in operations/supply chains, etc. This is why we see category managers still spend a lot of their time chasing fires over implementing new strategies. It’s almost akin to the strategy/planning systems talk one language e.g. French and the execution systems talk another e.g. English. What the industry needs is someone to develop these translation or reconciliation methods as much as more advances on the strategy side.
No doubt the Category Management model has evolved, probably faster than a single person or company could contribute alone, the new CatMan 2.0 model implies a paradigm shift of how problems must be solved, based on a collaborative process, evolutionary and alive. That is why I am convinced that a group of companies are required from different angles to address the issue and propose what is most appropriate for the retailers, manufacturers and solution providers community, and this is achieved through the process of the Association of Category Management.
Additionally, a dose of reality between theory and practice is always very relevant, so I invite those who actually live and implement the process (manufacturers and retailers) to participate in these comments. In my experience I have had the privilege of being working uninterrupted at the retail (more than 20 years) in various channels of and also collaborate in the process of CatMan 2.0 and we are not talking about just the change of two steps; we are talking about a market where banners and value propositions of brands are no longer defined by retailers and manufacturers, but by the shopper.
The retail world has changed more than we could imagine, and this happens on the reality (the companies) not in just the consulting, the cathedra, the technology, or even the school. At the end of the day, the most important thing is the execution capacity of these models which makes the difference in the companies, not of who has “the holy grail.”
I’ve been a category management fan for a long time. I’ve done the role several times in my life and I’ve really enjoyed the role that category management has played to help build store shelves. But I think it’s time for category management to go away. Today’s data inputs include social media, keyword searches, unique product offerings and unique product plays to ensure a retailer can compete before they consider POS data and syndicated data.
Category management has been a rigorous process that requires time that today’s retail doesn’t have. The data inputs can be acquired by technology and the process can be broken up into smaller pieces for the rest of a retail team to absorb. If nothing else, the retailer needs this time back to react fast enough to the changing market.
Moreover, retailers need to stop listening to category managers from brands because this impedes their ability to find unique brands and drive an assortment counter to the marketshares of the big companies that employ category managers. So I was a fan, but it’s time for category management to go.
The next generation of category management, equipped with more data, analytics, and insights, will be best enabled when we can see it as the basis for CPG supplier, retailer, and consumer collaboration – with both supplier and retailer sharing data more freely to better understand and facilitate the customer journey. It’s not so much re-inventing as it is evolving, and making better use of, and sharing the data that we now have available to us. Those mutually derived insights will become the foundation of of collaboratively developed long-range strategic growth plans.
I think Category Management needs an overhaul with a new generation of thought starters and though leaders. Data is vital, but we need a comprehensive approach to bringing all data from all channels in together to view all opportunities together. I.e., it is not just looking a Nielsen and IRI data any longer.
We need all eCommerce sales, social media sales, and other online channels due to the largest growth rates coming from online sales vs. traditional brick and mortar stores.