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Category Management
Asst Prof - George.K.J
Objectives
What is category management
• What category management can do for
your store, your buying and your
customer
• How to build a category, the rules
• How to use the information to grow your
business and increase customer
satisfaction
The Merchandise Hierarchy
Store
Department
Category
Item
Sku’s
Sub Category
What Is Required
Sales should be captured at the SKU
level
• Some items are replenished at the SKU
level (basics)
• Everything else is done at the category
level (planning & analysis)
Category Management
Category management is the process by
which we manage our business at the
category level to deliver better product,
pricing and service to our Customers
• First and foremost category
management is Customer focused
Category Definition
A category is a group or assortment of merchandise that the Customer finds interchangeable Would a Customer who was looking for a dress for work and not finding one, settle for a bathing suit?
CategoryA distinct, manageable group of products/services
that consumers perceive to be interrelated and/or substitutable in meeting a consumer’s needs.
Category ManagementThe process of managing categories as strategic
business units, producing enhanced business results i.e. sales and profits with a focus on delivering consumer value.
Charter for Change
From PushSalespersonBuyer/SellerCost AveragingDealsSales Drivers
ToPullBusiness TeamAccount ManagementCost to ServePay for PerformanceProfit Drivers
Charter for Change
From
Data Protection
Data
Shelf Management
Win/Lose
To
Data Sharing
Knowledge
Assortment Management
Win/Win
Elements
• Manage the category as a strategic business unit• Develop strategic category plans based on
category goals, competitors and market conditions
• Determine price, merchandising, promotion and
product mix• Collaborate with suppliers
Process Activities
Category Definition
Category Role
Category Assessment
Category Scorecard
Category Strategies
Category Tactics
Plan Implementation
Category Definition
• What products are in a category?• How will categories be grouped?
Category
Sub Category
Sub Category
Segment
Segment
Segment
Segment
Sub Segment
Sub Segment
Sub Segment
Sub Segment
Sub Segment
Sub Segment
Sub Segment
Sub Segment
Category Role
• DestinationTo be the primary category provider and help define the retailer as the storeof choice by delivering consistent, superior products.Determines where I go to shop.• RoutineTo be one of the preferred category providers by delivering consistent,competitive value products.Once at the destination, fills up the basket.• Occasional/SeasonalTo be a major category provider, help reinforce the retailer as the store ofchoice by delivering frequent, competitive consumer value.Purchased as need arises.• ConvenienceTo be a category provider and help reinforce the retailer as the store of
choice by delivering good consumer value.Not worth a special trip elsewhere
DESTINATION Category
• Helps define retailer as “ Store of choice” Constitutes major part of customer plannedpurchase These product groups carry“Best Range at Best Prices”• Implications:-• High Traffic, Exposure and Space allocation• Promoted at high frequency• Lead in share, sales, consumer satisfaction andservice level.• Alliance with Trading partners
ROUTINE Category
Helps develop Retailer as “store of Choice”
Customers buy these products as a matter of
routine
These product groups carry
“Competitive Range at Best Prices”
Implications:-
• Average location with high frequency
• Promoted with average frequency
• Requires preferred Suppliers
• Primary role in delivering profit and cash flow.
CONVENIENCE Category
Customer buys these products from a nearby
retailer rather than a distant retailer offering better
value
These product groups carry
“Select Range at Good Prices”
Implications:-
• Enhance margin and Profit generation
• Available space location.
• Low level of promotional activity
Seasonal / Occasional Category
Customer buy these products infrequently or seasonally.
Seasonal category can become a “ Destination Category”
during the season.
These product groups carry .
“Best Range at Best Prices”
Implications:-
• Timely variety of major Brands and Sku’s.
• secondary role in providing Profit, cash flow
and ROI.
• High traffic and average space allocation.
• Seasonal / timely promotional activities
SUB GROUP ROLES
• TRAFFIC BUILDER
• PROFIT GENERATOR
• IMPULSE
• IMAGE CREATOR
TRAFFIC BUILDER• High share in the product group
• Frequently Purchased
• High % of sales
• Higher Turns
PROFIT GENERATOR• Higher gross margins
IMPULSE• Customers are not brand conscious• Unplanned purchase• Visibility / Promotion driven• Stock turns are high• Need to be promoted heavily
IMAGE CREATOR• Specialty category• Caters to a niche segment• Highly promoted• Gives higher margins
Develop Tactics & the Business Plan-How do Category Strategies Translate into Tactics and the Business Plan?
Destination
Above “fair share” of MarketBelow “Average” Handling &Warehouse CostAbove Projected AccountedgrowthAverage ROi
Attract new customersIncrease # of tripsReduce handling costsReduce holding costs
Merchandising Feature & Display52 weeks a yearPricing: Top 10 SKUs belowlowest competitor everydayShelving: Prominent aisle locationSelection: Maximum Variety vs.Market
Routine
Seasonal/Occasional
Convenience
Merchandising: Feature & Display26 weeks a yearPricing: Top 20 SKUs equal tolowest competitors everydayShelving: Section large enough forzero OOSSelection: Equal Variety versusMarket
Fair Share” of MarketFair Share” of Market GrowthBelow “Average” Handling &warehouse costsHigher than average ROi
Above “fair share" of market atpeak consumption periodsHigher than “Average” servicelevel during peak periodsBelow average operating Expense during non peak periods
• Contribute above “fair share”of profit• Contribute above “fair share”of ROi
Increase $/PurchaseReduce Administrative costsReduce Holding Costs
Attract new shoppersIncrease % trips with Category purchaseReduce holding costs
Increase % of trips withpurchaseIncrease Rs/PurchaseReduce requisition costsReduce handling costs
Merchandising: Available SpacePricing: Non-inflammatoryShelving: Minimum space requiredSelection: Most popular SKUs only
Merchandising: Prominent Feature& display for key weeksPricing: Feature pricing lowest,shelf slightly higherShelving: Minimum needed spaceSelection: Large Variety forimpulse, reduced balanced of year
Role (Objective) Possible Goals Possible Strategies Possible Tactics
ADVANTAGES
• Helps to decide on the range which we carry
• The discounting of a category
• Promotions of the category
• Decide the no. of players in a sub group
• Placement of category in the store
Rationalization Options
Maintain : No change to current assortment
Increase : Increase the number of SKU’s in the
category, sub-category and segment
Decrease : The no. of sku’s in the category,
subcategory and segment.
Swap/Exchange : Alter the mix of SKUs by replacing
existing SKUs with new SKUs
Tailor/clustering : Tailor the assortment by store or
clusters of stores
Private label : Develop, abandon or expand on private
label representation within the category, sub-category and segment.
Traffic Building High Share Frequently Purchased, High % of Sales
Transaction Building Higher Ring-up, Impulse Purchasing
Profit Contribution Higher Gross Margin, Higher Turns
Cash Generating Higher Turns, Frequently Purchased
Excitement Creating Impulse, Lifestyle-Oriented, Seasonal
Turf Defending Used by Retailers to Draw Traditional Customer Base
Category Strategy Category Strategy Characteristics
Image Creating Frequently Purchased, Highly Promoted Impulse, Unique Items, Seasonal
Rules
Customers define category structure
• Use Department, Category, (Subcategory)
• No more than 10 departments per store
• No more than 10 categories per
department
• No more than 10 subcategories per
category
Benefits of Category Management
“Customers vote with their wallets”, we
can summarize the votes in a logical,
easy to understand way
• Tracking our business by department
does not tell us enough
• Tracking our business by SKU does not
tell us much beyond our top best sellers
and our worst sellers, it ignores the
majority of our business
Benefits of Category Management
• Proper categories make store
placement easier and shopping easier
for Customers
• We can also promote, discount, clear by
category
• Category expansion/extension becomes
easier to justify more likely to succeed
Category management requires
Proper identification of categories
(names)
• Display at the category level
• Planning at the category level
• Open to Buy at the category level
• Reporting at the category level
• Price analysis at the category level
How to create categories
Example – Grocery Store
• Department = Health & Beauty
• Categories
– Cosmetics / Treatment
– Cosmetics / Color / Fragrance
– Vitamins
– Oral care
– Hair care
– OTC
– First Aid
Another
Example – Department Store• Department = Men’s Clothing• Categories– Dress pants– Casual Pants– Shorts– Dress Shirts– Casual Shirts– Accessories– Underwear– Outerwear
Display at the category level
If the definition of category is a grouping
or assortment of merchandise that the
customer finds interchangeable, we
must display all merchandise in a
category together
• Some merchandise may require multiple
display areas (i.e. batteries, candy,
impulse items)
Planning at the category level
Merchandise plans must be prepared at
the category level
• Sales, Inventory, Markdowns are the
key numbers for planning and yield an
Open to Buy at the Category level
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