CPGMatters: Shopper Insights Drives Category Management
By John Karolefski
Through a special arrangement, what follows is an excerpt of a current article from the monthly e-zine, CPGmatters, presented here for discussion.
According to an Instant Poll on the home page of the March edition of CPGmatters, “using more shopper insights” was the most suggested way to improve the effectiveness of category management, picked by 32 percent of respondents. About 26 percent opted for making the process less complicated, and 22 percent want more collaboration with trading partners. Coming in on the lower end were more sophisticated analytics, 14 percent, and assorted methods, five percent.
“Shopper insights is the future of category management,” enthused one of the executives in the comments section of the poll. Another looks for “creating retailer solutions based on shopper insights.”
The importance of shopper insights to category management is no surprise to consultant Paul Thompson who believes that consumer-driven assortments will optimize conventional shelf sets. “But the data for category segments may not be aligned the way the consumer organizes or shops the category,” cautioned Thompson, managing director of Chicago-based Henry Rak Consulting Partners.
“A category purchase structure derived from both consumer usage and purchase patterns is required to align segments with consumer shopping behavior. An example of this is analgesics, which are aligned by ingredients like ibuprofen and acetaminophen. But consumers purchase analgesics based on ailments like headaches and body aches, not based on ingredients,” said Mr. Thompson, writing in the current issue of The Rak Report, a quarterly newsletter.
In support of “deploying more sophisticated analytics,” a respondent wrote, “Retailers and manufacturers must become more sophisticated in the analytics as well as in the execution of what the analyses are ultimately saying.”
Write-in
comments by survey respondents offered assorted other ways to enhance the
category management process. They included:
- Promotion and planogram compliance
in the stores; - Need to move from being an “efficiency” tool to becoming an “effectiveness” one;
- Buy-in
from top-level executives; - Empowerment of category managers to implement
tactics based on their findings.
Discussion Question: What do you think is most needed to increase the effectiveness of category management?
For the last several years, I’ve done a pretty detailed survey of retailers and manufacturers on what they’d like to improve, with most of the questions falling within the broad framework of category management. The first year, there were a goodly number of write-ins for “just plain good old fashioned communication.” So the next year, I made that one of the potential responses that people could prioritize. It comes in at or near the top consistently. Both sides lament insufficient face time, planning time and the ability to spend enough time to do a good job setting up programs and following through. Bells and whistles are fine, but unless you can find the time to execute properly, it ain’t gonna happen.
There is no question that shopper insights can provide the opportunity to drive category management. However, the key is to turn the shopper insights into actionable solutions.
It is clearly popular today to do research studies that attempt to describe and explain shopper behavior. They do well at describing how people feel and what people do. The trick is moving from the “What” to the “So what?” to the “Now what?”
In our work, we often find that the real value from shopper insights comes when you can integrate learning from several different sources to form an innovative solution.
What is needed for Category Management to succeed is the same as what any change initiative needs to prosper: Alignment of goals and strategies (that does not exist currently with the cross purposes of retailers and manufacturers too often preventing a meeting of minds), Top-to-top commitment from BOTH sides of the desk (too much lip service, not enough dedication to the process), Restructuring of organizations (HQ and operations/sales and marketing are not chasing the same objectives, accountability and responsibilities are out of whack), Consistency of evaluative metrics (what to measure and how to measure is based more on technological capabilities and less on the what really matters factors–shopper insights being a prime example–the lack of recognition of the shopper’s motivation, mindset, “job” or anything related to the in-store decision-making process continues to bedevil the industry).
In short, the Category Management process as currently practiced is incomplete because the executional aspects of it, the implementation side has not been addressed as well as needed.
Creating category management solutions that are tied to shoppers is certainly going to improve the effectiveness of those solutions. However, we’ve seen lots of shopper insight based solutions that fail to perform. Out of 207 studies, only 18% produce a positive category impact, 31% a positive brand impact, and 13% a win-win result.
One way to increase effectiveness of catman solutions (and in the interest of full disclosure, this is my business), is to test the solutions before taking the solution to the retailer.
Well-run retailers manage their merchandising themselves. Any suppliers offering performance improvement guarantees for their category management services? How many category managers you know who’ve gotten bonuses for reducing their own brand’s assortment, shelf space, and sales in favor of stronger brands? And what does the category manager do about a retailer client who short staffs the store payroll so much that implementation standards have no meaning?
The two biggest problems with category management are the “category captain” and the grocer. Management of a category should by done by numbers. 80% of space/time/work should be devoted to the 20% of products within a category that produces 80% of the sales. If that allocates too much shelf space to a category then cut back on the space allocation for the category and give it to categories that need more space OR cut back on all space and reduce the size of the store and the store’s overhead which will allow you reduce your prices.
You don’t need a computer to do this. We used to do it 50 years ago by monitoring shelf movement. If a product was depleted by purchases, we would increase its shelf space. At the end of the day, our goal was to have one of everything left. We came pretty close and not one supplier/vendor was involved. I have never seen a hen house managed by a fox that produced more chickens! Realize this isn’t an exact science, focus on the volume, consider the customer (that’s what 20% of the space is for) and adjust locally to meet your needs. And if it isn’t the same everywhere, that’s great!
We need to get out of the retail silo! To keep it simple and to think about shopper/consumer insights, we need more collaboration across the value chain and we need to see retailers also reach outside their comfort zone more–look at the trends out there and recognize the importance of consume and shopper research. Don’t forget the 3 Moments of Truth!
You know the phrase, “I’ll know it when I see it?” I prefer the phrase, “I’ll see it when I know it.” Shopper insights need to have an overarching framework that guides what you are looking for, if they’re going to add much to product-centric sales by SKU stuff.
A simple example is that shoppers need to be sub-segmented by shopping styles. Some shopping styles imply that a shopper is still deciding at shelf while others imply that the shopper has made up their mind before they enter the store. If you didn’t know what to look for, you might mis-interpret a rapid choice at the shelf as a lack of category involvement when it is really the reward for strong brand preference.
Well, this certainly is a hot topic and I suspect will be one for quite some time. My colleagues and I can throw around as many statistics as we want but the bottom line is: what is the right approach? Can we find a method of analyzing shopper’s behavior in such a way that we will get buy-in from both manufacturers and retailers?
Virtual reality is a nice and less expensive way to look at what customers (or is it shoppers?) MIGHT do when in the store but is it an accurate portrait of their actual behavior? How can we get the current Category Management teams to open up their thinking to integrate shopper styles into their equations? This will be very difficult, as I experienced their unwillingness during the last CM conference in Ft. Myers.
With the predictions of an increase in In-store media coming in the next few years, we will need to look at actual behavior, by category, of each individual and then use that information wisely when predicting how the sections of the store and the store itself should be laid out, merchandised and promoted. This “path to purchase” should be analyzed by knowing what shopper choices are before, during and after they visit any retail outlet. Then we will have some meat for our bones.
Shopper Insights? Consumer Centric? Shopper Centric? A rose by any other name is still…Follow the Money Trail! There are however different kinds of money and many branches to this tree. We have retailer GSV, retailer profit, manufacturer GSV, and manufacturer profit plus a multitude of offshoots and lesser branches.
Gaining insight into a shopper is easy, every time they enter a retail store they vote with their dollars, ie “follow the money.” Complication occurs in the realm of category management based on the dynamics of the relationship between manufacturers and retailers, especially in the area of DSD category management.
It is hard to forge the new relationship needed to take advantage of shopper insights when the dynamics of the current relationship are not fully understood. In a GMA presentation entitled “Making it Happen,” Win Webber ask the question, “Are retailers and CPG manufacturers ready to truly support a shopper centric approach to retailing? Short answer, NO! Why? Because they each have a similar but not necessarily converging goal; that goal is profit. Manufacturers use category management especially in the role of category captain to leverage an artificial advantage over their competition within the category by using space management to skew the process and corrupt the data that is being used in the demand planning phase of category management. Like the saying “you can lead a horse to water but you can’t make him drink,” it is difficult to force the manufacturer side of this relationship to act properly, the key to success is to make the horse thirsty.
Allotting space by combining the three elements of retail–price, margin, and velocity–to find the common denominator of profit contribution and allotting space accordingly is the basis for establishing a credible data base and the foundation for proper category management analysis.
First–everybody re-read David Zahn’s last sentence. Next–repeat after me: “It’s In-Store Implementation.”
Shopper insights, automated local planograms, targeted promotions and other very smart, very complex innovations are advancing faster than our ability to implement them in the store. Category planners are smarter than ever, but spotty promotion compliance, over-inventory and out-of-stocks, distorted section space allocation, and a general absence of product visibility at the shelf contribute to a store-level performance gap that can and must be addressed.
Call it “the elephant in the store.” With few exceptions, we simply don’t have a plan to implement the plans.
So what’s needed most to make Category Management work better? In-Store Implementation tools and technique, supported by a business culture that places at-shelf compliance as a top priority.
Henry Ford said, “If I’d have asked my customers what they wanted, they’d have said ‘a faster horse’.”
Surely, innovation is what’s needed more than anything right now.
Shopper insights are a huge component in category management. We want to sell what customers want. Equally important is the the actions of the actual buyer who works for the chain. Is shopper insight information analyzed by buyers? Is it presented in a way that they can understand and take action?
A great example is Home Depot. For a time, they were buying products that were not part of their core assortment and those skus became bunker weights instead of moving out the door.
Buyers need to be in tune with their customers and the data that is harvested cannot be ignored. What looks good on paper and has a great price and margin return may not actually work in the field. Collaboration between the marketing and buying departments is a must. Sounds like common sense but there are some chains where there is no connection between the two groups and it shows on the sales floor and the amount of dust collected on certain products.
Amen to Mr. Jones. AT MARS Advertising, “what is the so-what of that?” is the first question, and “what is the do-what of the so-what?” is the second question. However, lots of great recommendations are left on the table due to lack of alignment and commitment at various levels of client and retailer organizations.
While we celebrate the advancement of the shopper marketing discipline daily, we also lament the sheer volume of “trade spend” that continues to promote price and never makes its way into the budgets that support this level of work and results.
The truly prophetic merchandiser would tell us Category Management is dead and it is now “all about the individual.”
Having said that, the difficulty with projecting an individual image from the shelves of every store is overwhelming. This is where the online, virtual store, has great potential and the data gathered about individuals can be used to revitalize the Category Management processes.
Retailers in areas where broadband Internet access is widely available need to really think about what that means for improving their brick and mortar store processes. By understanding who buys the odd flavors, who shops for ingredients, and how customers “browse the virtual store,” Category Managers can be smarter in the way they run the real store.
Category Management will be around for a long time. It is important especially in Supermarkets because every penny (or I guess today it is two cents) counts.
We have all the basic tools for good Category Management. The breakdown is undue influence from Vendor Partners. We have shown models that triple the profit per square foot return, only to have the planogram abandoned by a retailer that opted for a check up front from the Vendor Partner rather than actually generating profit the old fashion way.
Until the day that retailers actually get serious about the category management process and gear towards actually selling something, we are putting pearls and lipstick on a pig.
The Hypothesis is correct, the Premise is wrong.
Here’s a tangential thought, but an important one. Customers in the store might provide insights (through questions, comments, and behavior) but do stores have mechanisms to get those thoughts back to headquarters? Most don’t…and many think that an anecdotal weekly call with a store manager is sufficient. Retailers will need to grow their ability to process unstructured data and create meaningful ways to analyze and act upon it.
As a wise merchant once told me “Category Management begins in the Real Estate Department.”
I’m a firm believer in “Category Management begins and ends with the Planogram.”
The current planogram is what the consumer sees today. Then you do a bunch of stuff you call a Category Review. Then the store (hopefully) implements a new planogram.
Making the plangoram easy to shop for the consumer is key. The author mentions Ibuprofen and Headache as Product and Consumer starting points. Another category with the same challenge is Diapers. Most manufacturers (and thus Category Managers) will tell you that the first stage of the Consumer Decision Tree is either Brand, Price Point, or Package Size. A true understanding of the category will tell you that it’s really Size. So why is this category always blocked by size…?
Payless Shoes puts out all of the shoes that fit me in one spot in the store so I can stand in one place and see almost every item that’s available to me…in my size.
Understanding the Consumer Decision Tree and building a business process around it will enable companies to excel at Category Management for many years to come.