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We’ve discussed humans’ need to put things into buckets before with Finelines, but what about categorization in general? How do retailers manage their categories?
Category management is defined as a purchasing concept which groups products together into discrete classifications. These product categories are then used to define purchasing behaviors. Examples of product categories are dry grocery goods, cosmetics, women’s apparel, and pet food.
According to Nielsen, a category definition “involves determining the specific SKUs that constitute the category, based on a manageable group of products that consumers perceive to be interrelated and/or substitutable in meeting a consumer need.” Walmart and other retailers spend a great deal of money on hiring category managers whose job it is to manage products and their categories.
Categories can be based on consumer needs, similar need or substitution value, and manageability. Consumer need is defined as the value a product brings to the consumer, such as the idea that minute rice is nutritious, easy to make, and prepared quickly. Inter-related or substitutable items are defined as products that meet similar needs or can be swapped for other products (such as minute rice for jasmine rice). Manageability is defined as the process of expressing categories that can be controlled in an in-store environment, with such considerations as logistics of the product (such as refrigeration needs) and size of the category (such as dry goods versus just “rice”).
Of course, Walmart and other retailers segment their products into subcategories and finelines so as to better merchandise items. This also aids in understanding the Consumer Decision Tree (CDT) (also known as product hierarchies), which assists in determining consumer buying habits and the decision-making processes.
Category management is defined in a number of ways. It is a process of turning product categories into business units and customizing them to satisfy consumer needs. It is also a strategy to maximize sales and profit via trade partnerships (e.g., retailer and supplier). Category management is also considered a marketing strategy.
Retail category management is a continual process. The Partnering Group first created the idea of the 8-Cycle Category Management Process. The cycle consists of:
Category Management 8 Step Cycle
Utilizing this process provides a framework for the retailer and the supplier to work together to create profitable scenarios for products.
The four Ps of category management are Product, Placement, Price, and Promotion. This concept is used to better understand the CDT and create a schema for products. The idea is basically, “Putting the right product in the right place for the right price at the right time.”
Product: Suppliers need to be able to group their products into defined buckets as defined by the supplier and the retailer together. This involves creating a unified brand name; defining the quality, types, and sizes of the product; creating packaging that properly displays a product’s use; the styling of the product; and the service the product provides and how it relates to other products in the same category.
Place: Suppliers should be able to define the placement of their products by category, including the destination channels, sales coverage, warehousing, and logistics.
Pricing: Suppliers need to create a price strategy for their products in a particular category. They also should look at allowances or deals they give their buyers and create a discount structure, as well as provide bundles of products.
Promotion: Suppliers need to provide advertising, a sales strategy, sales promotions, and publicity of their products in a particular category.
Product: For retailers, they need to look at the number of items in a category, the assortment of products, and the market coverage.
Place: Retailers will need to consider shelf allocation and layout and devise detailed planograms.
Pricing: Retailers need to look at the cost of products in a category and create a price strategy, looking at market price and price gaps.
Promotion: Retailers should also view the feature frequency and feature price of products in a particular category, as well as create promotional displays.
There are many benchmarks and trends to look at while analyzing the four Ps of category management. Additionally, consumer analyses and in-depth analyses must be done on each level to determine the success of categories.
Watching the four Ps of category management will help suppliers and retailers alike be successful, but suppliers need to pay special attention to sales numbers and consumer trends. Suppliers can work with buyers and retailers to go through the category management cycle. Walmart, for example, has a category management tool in Retail Link suppliers can use to edit or update their categories as needed.
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