Category management has been practised for well over a decade but many companies are failing to maximise its potential. The price wars seen in recent years have also caused it to slip in priority and managers are not being trained to implement it efficiently. But, with the entrance of a new generation of managers there is renewed emphasis on differentiating products and broadening the assortment through effective category management.

Helen Armstrong

Failing to train new recruits in category management is proving to be a costly business. Experts reckon the industry is losing millions of dollars through missed sales opportunities because category management is not being optimised. But this is largely because employees are unaware of the need, or are unable, to implement a strategic approach because they are not trained properly. Although the concept of category management has been around since the mid 1990s, and many case studies can prove its worth, more than two thirds (68 per cent) of industry professionals new to category management do not receive any formal training. Instead they simply learn on the job and thereby fail to implement any sort of strategic plan, according to recent research by the international food and grocery organisation, IGD, based in the UK. “Companies are losing sales, hampering trading relationships and potentially failing to manage risk by not practicing category management strategically or with defined processes,” says Karen Bevan, head of Consumer and Category Management, IGD. 

 

Searching for knowledge certainly companies in countries such as the Netherlands are reawakening to the benefits of category management and want to increase their knowledge, according to Embrecht vanGroesen, of GS1 Netherlands. “Retailers in the Netherlands first started to practise category management about 10-12years ago. With the price wars which have been going on over the last four years this has slipped in priority. Companies have been under too much pressure to properly consider category management and have not been giving priority to sharing information,” he says. But as new management enters the arena we are seeing it gain in importance again. Also, both retailers and suppliers, not only in the Netherlands but also, for example, in France and Germany, feel the need again to differentiate their products, says van Groesen. “Companies are very confident that there is much more to gain from good category management and there are enough case studies to prove the point. Companies who do it well can significantly expand a category assortment,” he says.

Even categories where there is little branding, such as fruit and vegetables can increase the assortment by better category management, he says.
GS1 Netherlands, which at the beginning of the year merged with ECR Netherlands, recently published a book in response to requests for more information.
“We have seen incredible interest for this book which is a compilation of knowledge and experiences in category management within from the Dutch sector.
“This is undoubtedly because new managers, not only the category managers but also those involved in logistics, sales and marketing receive too little formal training and want to know more about matching product assortment to consumer shopping habits,” said van Groesen.

 

Product availability US consultants, the Partnering Group, originally devised an eight step strategic approach to support category management which aims to simultaneously improve retail efficiency and give consumers what they want.
 The big benefit of category management is availability of product. “Our research shows that if a product is not on the shelf, 35 per cent of shoppers will go to another shop; 17 per cent will buy another brand and 25 per cent will not make a purchase. This leads to millions of lost sales,” says Karen Bevan.
To get this far, category management requires a lot of data collection to be able to fully understand the consumer and his or her buying habits, but that is just the beginning.
“Some part of category management is data analysis and it is not difficult to recruit people with analytical skills,” she says. “But this is not developing a strategy. It’s what you do with the information that’s important.”
“Developing a sales and marketing strategy for the category is the most challenging element.[…] Often people ending up as a category manager come from sales but they need to bean analytical person with the ability to think with an open mind. The most important skills required are to be a strategic thinker and a strong influencer,” says Bevan. They need to ask, “What does the data really mean?” and then turn the data into insight. And then they have to devise and deploy tactics to get the best products displayed.
When a new colleague arrives on the job, understanding how all the pieces fit together can be baffling, certainly if you’ve just moved into the post from a different discipline. But the quicker they can understand how to become apart of the category management web, the quicker they can play an efficient role and prevent loss of sales, she says.

 

Conscious change to business If you are not already practising category management then it is likely that it will require a total change in the businesses way of thinking. You need to change the structure of the business and of course it will require an input of resources.
First it is important that companies keep a breast of the global and domestic trends that are influencing consumer behaviour. “As a company you have to listen to shoppers and watch what shoppers do in store to spot emerging trends. For example we are already seeing the switch to single person households, and the emergence of the health and wellness-, as well as the environmentally-conscious driven consumer.
This information needs to be channelled into category discussions on an ongoing basis. It needs to bring about new product development, packaging design, and location and display in store.” Category management provides a framework for retailers and suppliers to work together for the benefit of both by focusing on the needs of shoppers,” says Bevan.

 Case studies “We know that CPG companies have a lot of information about their customers and we know that retailers have a lot of information about shoppers and shopping trends. When these are brought together – and there are sufficient case studies to prove the point – then the benefits to the assortment are tremendous, says Embrecht van Groesen. Karen Bevan describes how Carrefour in Spain turned around sales of its oral care category. In 2006, the company was losing share in this category and shopper research showed that consumers were buying toothpaste but not tooth brushes, which they bought else where. The category aim was therefore to create a new range and shelf layout to make purchasing more convenient and pleasant. The new offering used the category’s purchase decision tree and Carrefour’s shopper profiles to ensure that all consumers’ needs would be catered for. It went from dividing the shelf into sub categories into having a separate ‘kids’ segment and emphasising Colgate-Palmolive’s ‘four step model’: First, toothbrush: second, tooth paste; third, dental floss; and finally mouth wash. Colour coding was used to distinguish each step for both adults and kids and signs at the beginning and the end of the shelf were used to clearly communicate that this is what customers should be buying for good dental hygiene. 

 The plan was implemented in 154 stores within two months and Carrefour saw sales increase by 25 per cent compared with the previous year across the whole category.
Another successful case of category management was the launch of Oatibix in the UK by in August 2006. It was introduced after identifying the opportunity to tap into the consumer Weetabix desire for ‘natural wellnesses. Qualitative and quantitative trend research demonstrated the increased interest in the health benefits of oats. Two variants,Oatibix and Oatibix Bite size and two varieties Original and Sultana and Apple were launched. Ken Wood, CEO Weetabix Ltd, said, “The launch of new Oatibix and Oatibix bite-size has resolved the temperature, time and textural problems previously found with hot oat cereals. By creating an oat cereal that can be enjoyed cold, we have opened up a whole new sector which means consumers can now enjoy the health benefits of oats all year round.”
Within six weeks Weetabix Ltd had gained 100per cent distribution in the UK’s major multiple retailers. Within five months it was the13th biggest cereal in a market of 300 products. “The international food and grocery industry has long recognised the need for category management. These cases prove the benefits. However there are some short comings in the ability to implement this strategically and realise the benefits,” concludes Bevan. “In many cases, category teams are still seen as support functions, rather than the key drivers’ in many organisations. Instead, companies must ask themselves - how do we ensure that category management becomes a key driver of change in our business?” •

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