A categorical imperative

The Future of Category Management – by Dr Brian F. Harris

Category management has now been in use for over 20 years. Looking back over the period, I have seen the approach positively impact how customers shop in a couple of ways.

Firstly, category management has had a big impact on how products are presented to customers on store shelves. It brought a consumer perspective into the design of shelf presentations. As a result, category shelf presentations have become more “shopper friendly” thereby enhancing and simplifying the shopping experience for the customer. Secondly, category management concepts have led to significant changes in the design and layout of the overall store for many retailers. The idea that consumers shop to find solutions to specific needs has led to store designs based on "solution centres". In addition, the concept of category roles provided a key element for the successful marketing of the “solution centre” idea.

A business method evolving

Over the past 20 years, we have learned a lot about what works well and what does not work so well with category management. Like any successful business method, category management has evolved from these continuous learnings. This has led to a number of improvements in how category management is done.

The most important improvements have been the following:

1. The category management process has been streamlined to reduce the amount of time and effort it takes to find and address the key opportunities for improving the performance of the category. Rather than collecting large amounts of information and assembling it in templates, in recent years the focus has shifted to a question-and-analysis approach. This has eliminated a lot of data collection and analysis which generated very little new and potentially differentiating insights into the category.

2. Since its emergence, most of the value from applying the category management approach came from improving category performance by capturing the “low hanging fruit” opportunities that existed in the category. While this initial focus made a major contribution to category performance, it did not, in most cases, produce outcomes that helped the retailer differentiate the category in any way from competitors. In recent years, as most retailers and manufacturers have already captured most of the “low hanging fruit” oppor-tunities in their categories, the focus has shifted to modifying the category management process to find and implement category improvement initiatives that will be more sustainable and differentiating for the category. As a result, the category management process has become more open and creative.

3. Most likely the biggest enhancement has been the inclusion of both consumer and shopper insights into category management. This has been facilitated by the greater availability of shopper loyalty information, the dramatic increase in the spending on shopper research by manufacturers, and the major changes that have happened in how today’s consumers shop. Business plans are now based on a deeper understanding of shopper-behaviour in the category and how to influence shopping behaviour in the category.

4. The most serious deficiency of the traditional category management approach was the lack of attention to the implementation of category plans at the store level. This has become widely recognized and, in recent years, retailers and manufacturers highly committed to this practice have addressed this issue by significantly improving methods by which category plans are implemented. Among the changes are clearer roles and responsibilities for implementation, and involving store management in the development of plans so that difficult- to-implement category plans are not developed.

The Future of Category Management

The prevalence of information

The most obvious change has been in the area of information sharing. Prior to category management, the sharing of information was mainly limited to supporting collaborative supply chain initiatives between retailers and manufacturers. category management was the first demand-side business process that required collaboration in order to be successful. The original 8-step category business planning process was designed to guide the sharing of information in a logical and more objective manner. Compared to the past, the amount and quality of information sharing is significantly higher today, and category management has played a key role in facilitating this positive change in retailer-manufacturer relationships. In addition to more information sharing, category management has also played a key role in raising the skill levels of the people that do collaborative work at the interface. As this interface work became more strategic and more information and insights driven, different skills were needed for manufacturer account managers and retailer category managers. This upgrading of skills has changed the nature of the relationship and how retailers and manufacturers recruit and train their category management teams. Finally, it is now more common for retailers and manufacturers to undertake joint research to support category management work. This is becoming even more common as shopper research and shopper insights are incorporated in category management work.

Understanding customer behaviour

There is no question that, for many reasons, customer behaviour has become more volatile especially in recent years given the new economic realities that consumers in most countries are facing. This has led to new and challenging demands by customers. The dramatic changes in how shopping is now done – e.g. online, by tablet and with smartphones – has given customers a lot more options to satisfy their category and product needs. How these changes impact shopping in a category has become the foundation for the next generation of category management methods. These new shopper-centric category management models are designed to uncover deeper shopper and consumer insights in the category that can drive the development of category strategies and tactics that positively impact shopper behaviour and add value to the customer’s shopping experience. A stronger focus on understanding shopper behaviour and integrating this understanding into category business plans is how category management is adjusting to the dynamic changes that are occurring in customer needs, demands and shopping behaviours.

The Future of Category Management

Shaping the journey

Category management traditionally has been focused on managing how categories are “merchandised” to customers in an in-store shopping environment. While the predominant percentage of consumer packaged-product purchase decisions will continue to be made in the “brick and mortar” channel, the emergence of digital channels has and will continue to impact shopping behaviour in major ways. There are now more touchpoints in the customer’s overall “consumer and shopper journey” (C&SJ) that can influence how a category is marketed and merchandised to customers. Category management must now encompass all three phases of this journey – the pre-shopping phase, when the customer can now take advantage of numerous digital channels to get information for shopping planning; the actual shopping phase which now offers multi-channel options, and the post-shopping phase when the customer evaluates his category purchase decisions. The next generation of shopper-centric category management methods is designed to adopt this broader perspective and to recognize that to accomplish the full potential for a category, it is now essential to encompass a multi-channel and multi-media shopping environment. Adding value by superior on-shelf merchandising today is no longer sufficient. Category management must encompass the right combination of in-store merchandising and out-of-store marketing of the category.

Ten years from now

Key factors will shape the shopping environment of the 2020s. The good news is that, as has been the case for past decades, the changes will be evolutionary not revolutionary. The bad news is that retailers and manufacturers that fail to adapt will be the subject of “lessons to be learned from history”. How we meet the needs and demands of the next generation of shoppers will shape the shopping environment. As has always been the case, the needs of customers and how retailers and manufacturers respond to these needs will be the driving force behind the shopping experiences that are offered. The expectations of the new generation are different in many ways from those of past generations. The greater importance they place on the environment and on product information, their lower levels of trust of corporations and their brands, and the tools and technologies they prefer for receiving and using product information represent some of these major differences. The shopping experiences we create must address these next-generation customer realities.

The Future of Category Management

The shopping experience of the future will be a more transparent integration of shopping channel options that seamlessly links all phases of the consumer and shopper journey. Successful retailers will have integrated product marketing and product supply systems that draw no distinction between in-store and online or digital shopping. To the shopper, the shopping process will be transparent regardless of whether they purchase categories and products in-store or online. There will be virtually no distinction between whether the shopper shops online while in a store or online in a virtual store environment. Inventory management systems will be completely integrated to facilitate this transparency. New shopping technologies will significantly reshape the shopping environment and make it more “information and service friendly”. These new shopping technologies will provide product information, targeted offers, and checkout and payment services in a much more efficient and customer friendly manner. The next generation of “smart shopping carts” will provide a shopping technology platform for more informed and more personalized shopping, as well as for more efficient checkout and payment methods. This platform will integrate a number of shopping-related tools, including tablets and smartphones, and will be fed by RFID and IR product and location technologies. Importantly, most of the forces shaping the shopping environment of the 2020s are already visible. They have already started to impact the demands of customers and the decisions of those retailers and manufacturers that want to maintain or achieve leadership in the next decade. The future belongs to those companies that are able to develop the shopping environment they provide in order to accomodate these new shopping opportunities.

Dr Brian F. Harris is a founder and Chairman of The Partnering Group, a global management consulting firm specialised in advising consumer product manufacturers and retailers. He is recognised worldwide as the intellectual forerunner of category management, and has helped numerous retailers, wholesalers and manufacturing companies implement the approach. He co-authored the US, European, and Brazilian ECR Category Management Best Practices Reports.

Source: METRO GROUP

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