CATEGORY

MANAGEMENT
TOT on Retail Buying & Category
Management

3
rd
Jan 7
th
Jan, 2011
Mumbai NIFT

Asst. Prof. Lipi Choudhury
Session 9
THE ORIGIN
CUSTOMER
SATISFACTION
+ IMPROVE
MARGINS
?
POS
In the early 1990s, grocery retailers in the United States were
ready for a better way to run their business.

New products were proliferating,while consumers were becoming more
diverse and demanding.

Other classes of trade such as warehouse clubs were emerging.

Wal-Mart was getting ready to roll out its supercenter format that
combined the retailers traditional general merchandise store with a
full-line grocery store under one roof.

A dramatic change was needed.

Retailers sought a way to improve margins and compete more effectively.

They wanted to reconnect with consumers and satisfy their needs, or face
the prospect of an eroding shopper base.
The Origin
Many progressive retailers and manufacturers realized the data available
from retail point-of-sale (POS) systems carried crucial information for
success.

Was it possible to figure out which products to stock in a certain store?
Could analysis of the data tell retailers how to customize the shelf sets in all
the stores of a chain according to what shoppers were buying and wanted to
buy?
Could they attract and retain specific niches of high-value shoppers?
The answer was yes.

The way to do it was a process called category management that was
developed in the early 1990s by The Partnering Group (TPG), a consulting
firm.

A few of the larger retailers began testing the process. Soon the
manufacturers jumped on board with advice and support. They then started to
help other retailers adopt the principles as well.

In no time, category management was promoted enthusiastically and became
a must-have process for retailers and manufacturers.
The Origin
Early Practitioners
Safeway was one of the original practitioners.

Others included Kroger, Albertsons, and Publix.

SUPERVALU, the first wholesaler to practice category management,
brought the process to small independent retailers.

On the manufacturer side, Phillip Morris and the Coca-Cola Company
were early supporters of category management.

The latter developed a training program about the process that is still
distributed to retailers. It helps them understand what category
management is all about and what Coca-Colas role in the process is.
Category Management is a distributor/supplier process of managing
categories as strategic business units, producing enhanced business
results by focusing on delivering consumer value.

There are three key concepts in the above definition.

First, both distributors (retailers and wholesalers) and their suppliers
(manufacturers and brokers) focus on delivering the best possible value
to the consumers.

Second, it is a collaborative process that produces enhanced business
results for both partners.

Third, this process requires managing categories as Strategic Business
Units (S.B.U.).
Definition
Another way to think about Category
Management is to view the entire value
chain as consisting of demand/supply
chain, with Category Management being
focused on the manufacturer/retailer
interface.

It should be noted that internal to the
manufacturer, there are product
management functions that should be
organized by categories.

Similarly, internal to the retailer, there are
customer management functions (such as
loyalty programs) that need to be aligned
with the Category Management functions
for maximum impact.
Product/Customer Management: A Conceptual Model
Category Management


The retail consumer products industry is in a state of major transition due
to consumer, technological and marketplace trends.

Category management is an indispensable element of the industry's
transition to both more efficient operational practices and more
effective consumer marketing.

Category management represents a significant and proven opportunity
to achieve substantial business improvements across the entire value
chain - for consumers, distributors and suppliers.

However, it requires a major commitment from each trading partner in
the form of strategic alignment, modified structures, work processes, and
information technology systems.

To make this commitment, top management must understand the
potential contribution of category management, recognize the scope
of change required, and personally lead their respective organizations
through these changes based upon their unique circumstances.
The opportunity


Category Management has been a topic of growing importance to the
consumer products industry ever since point of sale (P.O.S) scanning allowed
an accurate assessment of product movement.

Starting with shelf space allocation in line with product movement, category
management has evolved to include a variety of concepts for managing the
demand chain:

Category management describes an emerging organizational design for
distributors.

The distributors buying and merchandising functions are integrated through
category management teams responsible for developing category business
plans both internally (procurement, merchandising and operations) and with
suppliers.

These category business plans are aimed at improving the overall
performance of the category, instead of buying the best "deals" and then
merchandising the best "sale" without understanding the impact of
merchandising plans on the category as a whole.

Scope
Category Management also describes the reorganization of the
suppliers customer interface and internal profit centers.

It represents organizing around customers (as multi-functional
customer teams), and categories instead of geographies and
brands.

Customer teams are supported by policies and practices designed
to add value to the total category management process.

Category Management describes the interactive and collaborative
business process in which distributors and suppliers partner to
create and manage consumer-focused category plans to boost
retail image and company profits.
Scope
Scope
Scope
Scope
Scope
Scope
Scope


The benefits from Category Management vary across retail formats,
category partners, and geographies depending upon how well it is
being practiced.

On average ,in the United States , the following results have been
achieved:

Sales increases of about 7% for the total category, with about 5%
being achieved for the manufacturer selected as the category
partner.

Margin improvement of about 5% for the retailer, with reduced # of
items and retail inventories; sometimes reduced space allocation as
well.

Margin improvement for the manufacturers due to lower cost of sales
and trade promotion costs. This number has varied considerably
depending upon how differentiated the category is, and how well the
manufacturers have developed their internal capabilities.
Business Benefits