A categorical imperative
Recognising customers’ needs and tailoring the in-store product mix to fit: that is category management’s job. Industry, retail and wholesale put together product groups and develop strategies to market them optimally in a joint planning process. The management concept promises higher sales and increased customer retention.
Picture a supermarket in the 1970s. A customer, armed with a long shopping list, enters the store and heads straight to the shelves at the entrance. However, the selection is poorly sorted, and many products are hard to find. The customer continues to wander aimlessly around the store, ultimately giving up in frustration and heading to the checkout with just a few items in his trolley. From today’s perspective, it is difficult to imagine this sort of situation. Customers expect to find the items they are looking for quickly. For instance, working people often want to take care of their most important shopping before work while grabbing a coffee or a newspaper – without having to rush about the whole store in the process. Meanwhile, families with small children have different demands from young people shopping in the evening for a barbecue. Modern retailers react to these different needs and adjust their product mix constantly to fit. They display individual product groups, such as nappies and baby food, in a single place to make shopping easier. The simple rule-of-thumb is: the more customers benefit, the better the sales.
An opportunity for co-operation
This change to fit customers’ shopping habits has been going on for more than 20 years as part of a structured joint process between manufacturers and retailers called category management. At its core is an attempt to find out which products belong together logically from the customer’s point of view. Retailers then group these products into categories in order to place and market them optimally in the store. This results in shorter distances for customers, and it encourages impulse buying.
Category management began in the United States in the mid-1980s. Back then, American companies faced a challenge: consumer spending was stagnating, and there was an oversupply of goods, services and businesses. Some retailers had also come to notice that there was a far more efficient way to distribute goods. “One of the retailers I was working with started restructuring his purchasing and sales organisation,” recalls Dr Brian F. Harris, co-founder of The Partnering Group. The consultancy firm has been instrumental in shaping the development of category management. “Buyers were no longer to be responsible for managing individual brands or manufacturers, but for all products within a category. This new way of working was made possible by several developments that occurred at that time, including the introduction of more advanced space management systems and the ability to feed these systems with point-of-sale (POS) data for all products in a category. These new tools and sources of data enabled a category perspective to be incorporated more easily than before into buying and selling decisions. This is the actual origin of the term ‘category management’.” Retailers grew to realise that they could optimise the structures for distributing merchandise to stores by a significant margin based on this concept. “When this trend started to become apparent, far-sighted manufacturers seized the opportunity to establish a new way of working together with retailers as partners,” says Harris. For the first time, product groups were formed and marketed in a joint planning process.