Category management has evolved to offer greater customization at both the store and consumer level

Category management come a long way from the template-burdened practice it was a year or so ago. While today's version is still focused on driving and maintaining particular categories, the entire process has become both narrower in its ability to zero in on consumer subgroups and broader in its proficiency to analyze vast amounts of data.

Category management no longer looks solely at driving sales and improving efficiencies in one particular category. Now, it also determines how a product can cross categories to drive sales and improve the customer's opinion of the store.

"Category management is an evolving tool used by a variety of manufacturers and retailers to maximize the productivity of their categories," says Bill Parsons, vice president of corporate trade development for American Greetings, based in Cleveland, OH. "Today category management helps evaluate where the greatest opportunities lie—to both drive store traffic and increase average transaction size and profits. While the emphasis has been on template-based tactics, the real drivers will be consumer-focused strategies used to steer consumers to stores."

To backtrack a little, the term "category management" became one of the industry buzzwords of the 1990s, holding forth the promise of increased in-stock position, higher turns, SKU rationalization, and greater supply-chain efficiencies.

Unfortunately, the time and effort involved in category management could outweigh the benefits. The process in its previous incarnation will actually be remembered most for the 60-plus page templates that needed to be filled out. The money and effort and lack of substantial results led Paul Kelly, president of Wilton, CT-based Silvermine Consulting, to title an article in his 1997 newsletter: "R.I.P Category Management."

Obviously, category management had to change. Today new buzzwords like consumer-based category marketing, efficient consumer response, customer relationship management, solution selling, and strategic co-positioning abound, but what's for sure is that the industry is better utilizing data to target consumers and manage inventory throughout the supply chain.

"There's been a shift to more realistic sets based on product movement," says Steven Love, vice president, national retail team for Cap Gemini Ernst & Young, LLC. "Today customers want in-stock position. The ultimate in an incredible category set at store level is high in-stock and allowing the retailer to replenish that product set in 24 hours."

Cannondale Associates reports each year on the status of category management amongst consumer-packaged goods manufacturers and their supermarket retail partners. According to this year's study, retailers on average reported 12 percent sales increases from category management, up four points from last year, compared to more stagnant overall sales growth of 3 percent for grocery and drug stores and 9 percent for discount stores. Manufacturers reported an average 13 percent sales increase from category management.

Nancy Swartzentrauber, manager of customer information services for Rubbermaid, based in Wooster, OH, says in the days of template warfare, "It used to be a six- to eight-month process for a retailer to review a category from top to bottom. Now we're continually managing their information on a monthly basis and reporting factwise twice a year. We look at their categories more in-depth, but we're not filling out predefined templates. We know what they want out of the category, and therefore we go after that information and tell them what's going on and how they should run their business.

"We have a vast amount of data at our disposal," she continues. "We can look at demographic panel information, purchase trends summary information, standard overviews and syndicated data reviews of the category. It's important for us to substantiate statistically to our customers why this category is important or why variance in the planogram will help drive the business."

She explains that in a category such as home organization, Rubbermaid would look at the retailer's numbers and compare these to other numbers within the channel of distribution and then across the entire business to see if the retailer was performing up to standard or not.

"Then we would dig deeper to find out what's bringing the numbers down or up," she says. "We can expect that sales, profitability and promotional efficiencies would increase depending on what we determine through the category-management process."

Store greeting card departments have long been the sole province of a lone supplier, making their category captain role easier to fulfill. According to Parsons, "We control the entire category unless we supply for half the stores and another supplier has the other half, then we can be the category captain and drive the category."

American Greetings has long been on the forefront in terms of tailoring assortments on a store-by-store basis, or micromarketing.

Micromarketing and Market Baskets

Advancements in technology have allowed more vendors and retailers to micromarket and do market-basket analysis, in which store data is used to determine which products consumers are likely to purchase together, thus enabling retailers to better plan cross-merchandising, promotions and adjacencies.

The next step up from market-basket analysis is solution selling, or grouping products together to essentially solve the multiple buying needs of the consumer.

"A supercenter has tremendous opportunities here," says Love. "If customers are shopping for back-to-school, a supercenter could pull together an entire solution center with backpacks, tablets, pens and pencils, jackets, refrigerated lunchables, bagged candies and snacks."

"In the past year or two we've seen more use of consumer insight into category management," says Glenn Stoops, partner, customer relationship management, for Atlanta, GA-based PricewaterhouseCoopers. "The term customer relationship management (CRM) is being used more often as we shift the focus more to the consumer. "

This past summer PricewaterhouseCoopers LLP and the Grocery Manufacturers of America issued a comprehensive report, "Database Mining for Precision Consumer Marketing." The report states that according to Data Analysis Group, investment in data warehousing hardware, software and services has been growing at a 15 percent to 30 percent rate in recent years, and the use of analysis tools that allow users to query, report and mine the data stored in the data warehouse has exploded. CRM applications enable users to access consumer data and more capably segment and mine the data.

While category management thrives on this electronic data, it can't provide human insight and inquisitiveness.

Stoops says, "You can look at total sales at the end of the year or total markdown, but that won't dissect what happened and how you can learn from it. There's no software program that can give you all the answers. You need to know what questions to ask and how to apply that to your business."

Data analysis is also unable to perceive the hows and whys of consumer shopping habits and why a transaction did or didn't take place. Sometimes there's just no substitute for traditional consumer research such as surveys and focus groups, or simply talking to shoppers.

Don Stuart, partner at Cannondale Associates, based in Wilton, CT, says, "What's starting to occur is the adoption of consumer based category marketing, or looking at why consumers shop a particular channel and store."

Stuart offers this hypothetical question for the hair-care category: How would a convenience store, mass merchant, drug store and supermarket approach hair-care products based on consumer shopping habits and expectations?

"In a convenience store, shoppers are in and out and not that interested in selection or price," he replies. "In a mass merchant, they are much more concerned about price and value. In a drug store, they're looking for selection, which is a strength the drug store would want to play up. Supermarkets have the traffic, so the manufacturer would want to take advantage of that with a good solid presence in this category."

"We've looked at the dynamics of the shelf; now we want to look at the dynamics within the shopping experience," says Kelly, "i.e. what were the steps that led you to a particular purchase decision at a particular channel and outlet in response to what kind of stimuli? We want to understand channel behavior and how we can better comprehend what consumers' expectations are in one channel vs. another."

Kelly says the approach can be taken even further, "to see why the consumer's behavior might be different at King Kullen than at Stop and Shop. Manufacturers would then work collaboratively with key retailers to understand what goes on in their outlets in order to move the category forward."

He points to account specific research using store intercepts, where a researcher asks the consumers' permission to follow them around the store "and ask why they bought a product, to better perceive what's going through the consumer's mind and translate that into account-specific promotions," Kelly says.

According to Love, consumer relevancy is a hot topic right now. "Consumer relevancy looks at contextual values vs. content values," he says, explaining that while contextual values look at product, price, selection and quality, content considers the less tangible aspects of how customers feel about that quality and pricing as well as the entire shopping experience.

"We recently conducted 5,000 interviews with consumers, asking them about the shopping experience," he says. "We found that they want to feel rewarded, respected and appreciated, and they want honest policies. "

For some retailers, frequent shopper cards seemed like a relatively easy way to gather and track data from the same consumers over and over. In short, the shopper would fill out a form, obtain a card for presentation at purchase, then reap monetary or other rewards when certain purchasing goals were met.

But while consumers may have grabbed at the freebies, not all retailers were as eager when it came to utilizing data on who these customers were and what they were buying. In essence, say experts, frequent-shopper cards in many instances became nothing more than electronic discount cards, particularly for the supermarket channel.

"These cards are intended to capture information about the customer and reward your better customers, but no one's figured out the best way to do this," says Steven Love, vice president, national retail team for Cap Gemini Ernst & Young, LLC. "And you're discounting something the consumer was already going to purchase."

In addition, he says there are difficulties in translating frequent-shopper programs from the supermarket to the mass channel. Since mass merchants offer higher-margin items, the discounts would therefore have to be higher in order to incite consumers to use the card.

Even if these programs have not yet delivered, both Glen Stoops, partner at PriceWaterhouseCoopers, and Don Stuart, partner at Cannondale Associates, see frequent-shopper and loyalty programs as the next stage of the category management evolution.

PricewaterhouseCoopers LLP and the Grocery Manufacturers of America's 2000 report, "Database Mining for Precision Consumer Marketing," looks at the ability to capture data on the shopping behavior of individual households and then evaluate that information to improve marketing, merchandising and operations.

Bill Parsons of American Greetings sees the potential in frequent shopper cards, but says that not enough companies are taking advantage of the data collected. "There are some retailers doing a good job," he says, noting that he personally gives the highest ratings to Norman Lane, a two-store chain based in Dayton, OH.

"It's one of the most sophisticated card programs I've seen," he says. "They know their top tier of customers, how much they spend, and what their needs are. These customers then receive packets geared toward their shopping habits."

However, Parsons adds, successfully implementing a frequent-shopper card program "is not an easy thing to do."

Category Management, Part 2

Copyright© all text 2004 by Ela Schwartz