Future Series Category Management White Paper
Future Series Category Management White Paper
Future Series Category Management White Paper
The future of
category management:
Top trends for the next decade
Abstract
Retail customers of the 21st century are more
demanding than ever before, and their shopping
behavior is more complex. Whether we like it or not,
the traditional method of serving the market no
longer works. The old methodology of analyzing past
sales to determine when to ship merchandise from a
warehouse to stores cannot meet the omni-channel
demands of the shopper. In today’s “my way” retail
environment, technology-enabled consumers have
enormous expectations that impact every aspect of
retail.1 This new reality has created the need for an
“always on” category management platform that
runs at the current and future speed of retail. This
white paper investigates the top category
management trends over the next 10 years. It also
suggests ways that retailers can begin adapting now,
in order to remain relevant, competitive and
successful in the next decade and beyond.
Author biographies
Alan Hetherington is Vice President, Product Development
Group, JDA Software
Kent Ruesink is Senior Director, Product Management
Group, JDA Software
Todd McCourtie is Senior Director, Industry Strategy,
JDA Software
Carla Goodwin is Strategic Services Director, JDA Software
1
1 Introduction 3
2 Big Data: Revealing consumers’ behavior 3
2.1
A new environment requires new practices 4
2
1 This white paper aims to showcase and explore
the prevalent trends that will reshape category
Introduction management over the next decade, laying the
The retail industry is in the midst of a profound foundation for this new reality.
structural shift from physical, brick-and-mortar stores
to a hybrid physical-and-digital environment. This
dynamic — along with the new volume, velocity and
2
range of available consumer data — is accelerating Big Data: Revealing consumers’ behavior
the need for a major transformation in category The entire world is becoming more and more
management. Today, retailers need to rethink their data-driven. Retailers have one of the biggest
approach to targeting customers. Changing the way opportunities to take advantage of this trend. Big
the business operates will enable retailers to provide Data in retail offers big payback potential. The
shoppers with the services and products they want, McKinsey Global Institute estimates that Big Data
when and how they want them. can grow profits in the retail industry by 60 percent.
Success will be based on mining the volume, variety
Best practices in category management over the next and velocity of consumer data streams in order to
decade will be focused on enabling a faster response generate insights. These insights will lead to timely
to changing conditions, including the increasing trend recognition of shopping patterns and demand trends.
toward localization. The next generation of category The benefits will be realized in more successful
management will replace today’s project-oriented product launches, optimized assortments and
approach with a higher-frequency methodology. This merchandising, more personalized marketing and
will be enabled by the availability of a wide array of better consumer relationships.2
data sources — including Big Data and social media
— as well as the ability to process, act on and learn Gone are the days of relying on antiquated descriptive
from this data. Category management will transition analytics about how “like items” performed in prior
from a rules-driven paradigm to a learning paradigm years. Big Data, enabled by machine learning, is
enabled by machine learning. providing transformative opportunities for retailers.
Today, customers buy products across multiple
This transformation will be accomplished by enabling channels using real-time information to make
a new set of capabilities: purchasing decisions through reviews, ratings and
price comparisons. They leave a trail of information
• The ability to anticipate demand using a vast
about their preferences.3
array of consumer insight data sources
• Alignment of assortments with local Retailers need to collect and analyze this structured
demographics and shopping patterns, based on this and unstructured data to predict what will happen
data in the future. Shopper profiles can be developed to
• Translation of assortment decisions into help them understand the behaviors driving customer
executable space plans that optimize both space demand. Retailers can then adopt responsive category
allocation and optimal facings on store-specific management strategies which will help them engage
planograms more customers, more profitably.
3
2.1 become more important going forward. Achieving
real-time analysis of data to predict trends, and having
A new environment requires new practices
the ability to act on the insights, will drive retail
Competing in this new environment — populated by
innovation in the future.
always-on, highly connected, informed consumers
— won’t be easy for retailers, but it is doable. In
Winning sales at the retail shelf will become
fact, considering the doomsday predictions of the
more important, and new tools are emerging
past regarding brick-and-mortar stores, retailers
that enable the capture and analysis of data —
should be inspired. Retailers that can predict trends
including smartphone apps that track consumers
will discover how to gain and retain loyal, engaged
in the store, as well as customer databases tied to
consumers who follow through on purchases, spend
loyalty programs. Retailers can leverage these new
more and spread the branding message for them.4
technologies to win increased sales. For example,
the insights gained from monitoring customers in the
However, in order to adapt to the new reality of the
store can be used to generate instant coupons. Data
next decade, retailers must adopt these key practices:
about shoppers’ purchase path will also support more
• Real-time data monitoring and sentiment targeted, more specialized brick-and-mortar retailing.
analysis. Making data more accessible in a timely
manner — in order to recognize market shifts and All retailers need to gather and analyze demographic
demand trends — will create tremendous value for data to understand not only who lives nearby, but
retailers. also who works nearby and who drives past the store
• Consumer micro-segmentation and offer every day. Merging smartphone apps with existing
customization. With the abundance of digital data loyalty programs can help uncover this kind of
retailers can access, they now have the ability to information.
create highly specific segmentations. They can
tailor assortments, pricing, promotions and product 3.1
placement to engage more consumers. Mobility will continue to transform the
• Predictive analytics. Retailers need to leverage shopping experience
available consumer insights to support increased Today, mobility is transforming the way shoppers
localization and personalization, dynamic pricing engage with retailers — and this trend will only
and improved merchandising. continue. Over the next decade, mobile technology
will increasingly be used by shoppers on the path
Establishing these new practices will mean acquiring to purchase. The smartphone will continue to be
the right talent to manage Big Data. The new world integrated into all parts of the shopping journey, from
of workflows, collaboration and advanced analytics research through shopping, payment and follow-up.
requires new skills. The value of skilled data scientists
and data-savvy managers will only grow as data and In the future, augmented reality will increasingly
analytics tools become even more widely available allow shoppers to see products beyond the box or
and applicable.5 showroom, providing consumers with personalized
information while they are browsing shelves. Other
3 innovations will include more self-service check-outs
Reinventing the customer experience via mobile devices, in-store mapping for easy self-
navigation around stores, and beacon technology for
Shopper behaviors, wants and needs will shift
greater self-education on products.6
constantly and by category/product type. This means
that there will be an increasing need to personalize
Sensors placed strategically around stores will enable
the shopping experience, whether online or in-
retailers to recognize shoppers via their mobile devices
store. Consumer profiles need to be developed and
when they walk through the door.7 Items may be
maintained, and products targeted to those specific
scanned into the basket using the retailer’s mobile
profiled consumers. This is necessary to maximize the
app on a smartphone. Shoppers can simply walk out
impact of product ranges and offerings on consumers
of the store with their purchased merchandise, having
and ensure more profitable returns. It will only
never interacted with a checkout.
4
Retailers will use mobile devices to bring better 3.2
insights into the selling process through access to
The retail store will change significantly
purchase histories, preferences, loyalty program
Already, the role of the store is changing from
status and other personalized recommendations.8
primarily being a shopper experience and purchase
Adding rich product content to the selling process
point to becoming a fulfillment center, returns
via mobile devices brings another level of detail
center and showroom. This trend will only continue
to the shopping experience that customers will
over the next decade, driven by retailers’ need to
appreciate. In addition, indoor location technology
satisfy customers and provide them with instant
has the potential to transform shopping into a more
gratification.
interactive and personalized experience, enabling
retailers to provide new services to shoppers.
Retailers will need to develop new in-store processes
to serve the omni-channel shopper. Grocers need
The future of retail lies in creating a personalized
to solve the problem of delivering products to
shopping experience via better engagement,
consumers’ homes, while maintaining the freshness
enhanced customer service and more informed
and correct temperatures of products. Soft lines and
retailers. From the retailer’s perspective, mobility
hard lines retailers must contend with consumers’
provides the opportunity to further enhance
growing tendency to use their stores as “showrooms”
personalization and targeting by leveraging the
— then buy products from an online retailer who
shopper’s location.9 Mobile tracking technologies
offers a lower price. Every retailer must figure out
will provide additional context to improve retailers’
how to merge physical stores with online channels via
understanding of the consumer’s path to purchase,
“drive through” store pickup services or other click-
allowing retailers to become better at targeting
and-collect options.
consumers with the right offers.
5
4 4.1
Localization/personalization: The new Automation resources will be key to
imperative localization
In today’s global economy, one size does not fit all. The need for localized assortments has continued
There are numerous examples of a product being to put a strain on retailers, as well as manufacturers
hugely popular in one part of the world, but failing who support them. In today’s hyper-competitive,
miserably somewhere else. There are many reasons omni-channel environment, localization of
this can occur, but it’s clear that retailers need to assortments is the new norm. In fact, the number
clearly understand their consumers — and their of planograms and assortments needed to support
geographic differences — before they embark on localization strategies has increased significantly in
category planning. Success in the global marketplace the past three years.
requires every category manager to define the
products, ranges, assortments and marketing tools Increased planogram generation demands, specialized
that will reach different consumer groups in different assortment planning and the need for data analysis
areas. For example, they must understand regional are straining category management departments.
color preferences, culturally appropriate product Because headcounts are not increasing, there is a
names and other nuances. huge potential for employee error and burn-out.
Shopper behaviors, wants and needs will continue The answer lies in automation: the application of
to shift. This means there will be an increasing need template-based, rules-driven processes enabled by
to personalize the shopping experience, whether computers, significantly reducing human touchpoints.
shoppers are online or in the store. Consumer profiles Automation is not just valuable in reducing repetitive,
need to be developed and maintained, so that redundant tasks which are manual today; it also
products and offers can be effectively targeted to allows an immediate response to any significant
specific consumers. In addition, real-time analysis of changes detected in the customer demand and supply
consumer data will allow retailers to predict trends chain, without the need for human intervention.
and act quickly to gain a competitive edge.
It will be critical for organizations to adopt
How can retailers increase their understanding of automation resources, including software and
individual consumers? They can leverage social media scripting tools, in order to meet the arduous task
metrics, demographic profiles, information from of supporting the store-specific needs of local
loyalty programs, and geographic and socio-economic consumers. With automation, space plans tied to
data. They can also apply prescriptive analysis to replenishment will be updated as needs shift in real
study shopper habits, in-store pathways, shopping time. In addition, changes to the macro space will
basket contents and adjacencies. Substitution and always be in sync with space planning and assortment
cannibalization metrics can help provide a deep level changes.
of personalization based on shoppers’ demonstrated
needs and preferences. Category management work processes will shift from
task-driven functions to automated, rule-based plan
Obtaining and leveraging a larger, richer data set will creation, helping counter the current problems of
require retailers to increase their expenditures on understaffing and employee burn-out.
software and services. Host systems will need to be
expanded to include new, more robust attributes. In
addition, organizations will need to hire employees
with the skills required to extract actionable insights
from this data. Organizational changes will also
be needed to enable greater collaboration across
functions within the retail organization, as well as
between retailers and manufacturers.
6
5 Retailers and manufacturers will continue to benefit
from JBP as the omni-channel evolution continues.
Collaboration: Adopting a joint business The ability to better understand future consumer
planning approach needs, and work together to address them, will
There is an increasing need in the market for become critical to introducing new products and
collaborative planning between retailers and ensuring availability.
manufacturers. Joint business planning (JBP) — also
known as integrated business planning — is the 6
process by which manufacturers and retailers come
together and align on corporate goals and strategies
Monitoring and increasing compliance in
to better serve the customer. Sharing information and stores
aligning goals, in theory, creates a mutually agreed- The best assortments, planograms and space plans
upon business plan. The market trend as we move deliver minimal value if they are not implemented
toward 2026 and beyond will reflect a move toward properly. In-store compliance with plans is essential
more collaborative business plans. for success, now more than ever. A shelf set is
considered compliant when all merchandise is set
Sue Nichols, CPSA Category Management Knowledge according to the planogram. This is, however, a
Group, in a blog post from January 2016, states: rare occurrence which most likely exists only for a
“In theory, joint business planning is a collaborative few minutes after the reset has been finalized. The
effort between the vendor and retailer which involves moment shoppers start adding items to their baskets,
open sharing of information. From a basic level, it is a compliance begins to deteriorate.10
business plan that is developed between vendors and
retailers, through sharing of select information. This failure to comply does not even take into
consideration compliance with marketing plans,
including the placement of signage and other
• The plan should include expected trends, initiatives
materials. Many consumer packaged goods (CPG)
and the forecasted market environment, so
companies believe that much of the in-store
that there is a greater chance for the goals and
marketing materials they send to stores are either
objectives within the plan to be attained.
installed incorrectly or never placed at all. It takes
• A successful joint business plan requires each party an incredible amount of time and focus to ensure that
to clearly understand the others’ goals, business planograms are followed consistently in the retail
and customer requirements. store.
• Shared understanding becomes the foundation
of the JBP, with both businesses pooling their The criteria for compliance may vary across different
resources and expertise to achieve specific goals. product categories and classes of trade. In many
The risks and rewards of the plan are also shared.” cases, retailers may be able to measure the condition
of five to 10 “destination” items for each category
As they seek to implement a JBP approach, and the items adjacent. If the key items and their
organizations’ biggest challenge will be securing the adjacencies are correct, then the set is probably
buy-in and support of senior leadership. The high in good shape overall. If not, retailers may be able
level of trust needed to share not only strategic to assume a compliance problem. Many retailers
plans, but also the data sources required to support have compliance scorecards to help ensure that
long-term strategic planning, will be critical for the planograms are being adhered to.
process to evolve and work.
Even today, most retailers find it difficult to measure
While this process will be difficult to implement, it is accuracy down to the shelf level, or the degree of
a strategic imperative. The implications of isolated compliance of a shelf set against the planogram
planning will directly and negatively impact both schematic. Accurately measuring compliance requires
retailers’ and manufacturers’ ability to satisfy the the ability to validate in-store sets against the
consumer. Failure to adopt JBP will result in the assigned planogram model. As this manual, time-
erosion of product availability, both in-store and consuming process frequently yields nebulous results,
online. it is essential for retailers to explore and leverage
technologies that will enable them to monitor and
maintain their shelf-sets with much less effort.11
7
For example, cameras in mobile devices can help Retailers need to increase visibility into their
optimize the selling potential of every square foot by floorplans, in order to decide if placements and
visually reporting planogram deviations. This enables adjacencies are supporting cash-register sales.
rapid adjustments to shelf strategies and supports They need the ability to run “what-if” scenarios that
higher sales. Continuous monitoring of the in-store allow products to be reset until the best floorplan
environment could be combined with technology is determined — based on factors such as consumer
like the new LED smart lighting from Philips that choice, adjacencies and labor optimization.
will allow a retailer to track a consumer’s location in
the store to within inches. Retailers will be able to Beyond the performance of products, retailers
understand how much time it takes for consumers to must optimize the performance of the in-store
make a purchase decision, with the goal of improving workforce. Task management tools will ensure work
customers’ shopping experiences. In addition, is completed, while also prioritizing tasks such as
crowdsourcing data from customers’ smartphones resets and display setups. These tools will provide the
could be deployed to help solve in-store problems. capability to see what is most important to do on any
Customers could be asked to complete a task, then given day, prioritize tasks considering the staff that is
rewarded with an incentive. These are just a few of available and maintain customer service.
the groundbreaking technologies that could transform
the retail landscape between now and 2026. 8
New world, new skillsets
7 The next decade will demand significant changes in
Leveraging feedback for continuous employee skillsets in order to support the category
improvement management process going forward. There will be
In the next decade, retailers not only need to an increased need for data analysis as it relates
understand shopper behavior, but the availability of to assortment localization, omni-channel planning
real-time inventory to meet that demand. Monitoring, and space elasticity. In addition, there will be an
analyzing and adapting to the variety of purchase increased need for staff who can define the rule sets
paths available to shoppers will be the foundation of needed to automate category management and space
success in retail. planning for mass localization.
Executing successfully at the store level, while The challenge will be finding the critical resources
providing performance metrics to the corporate and advanced skillsets to support the changing
team, will be essential to identify and accommodate retail world. Based on a study conducted at DePaul
rapidly changing customer desires and shopping University in September 2015, the retention of
habits. Category managers and corporate planners category management professionals will begin to
will need the ability to view and analyze store-level erode, and by 2020 organizations could lose up to
performance and make changes to the planogram. 20,000 category management professionals. With less
By monitoring performance metrics and adapting than 2,000 new category management professionals
to changing customer desires and shopping entering the market per year, there is a looming talent
habits, category managers will be able to optimize shortage of crisis proportions.12
planograms on a continuing basis.
8
To address this problem, organizations will need Neural networks are expected to play a role in
to find many more graduates and professionals extracting meaningful insights from large quantities
with experience in data science and predictive of information. Neural networks first emerged
analysis skillsets. They will also have to consider the during the late 20th century as a potential method
personality types of new employees. For example, of allowing machines to learn, by modeling them
Millennials are much more tech-savvy than older on the neuron/synapse systems of the biological
employees. They need to be challenged and may not brain.14 Limitations to their structure meant that they
be suitable for the redundant tasks that characterize did not fulfill expectations at the time, but further
space planning. Analysis of customer and assortment developments since 2006 have shown great promise
data may be a better fit. by extending the number of hidden layers, using
the back-propagation algorithm and convolutional
Organizations should identify universities with techniques.15,16
category management programs that have forward-
looking curricula, focusing on data and analytics — Today, deep-learning neural networks are finding
then recruit from these schools. useful applications in many fields which require
pattern recognition from large amounts of data,
9 including visual object recognition17,18 speech
recognition19 and customer profiling. Over time this
Emerging technology innovations will approach will be applied in more fields with great
support these trends effect, potentially even to tasks involving “human”
A number of technology trends and innovations will design, like planogram creation.
help retailers over the next decade as they seek to
better understand the flow of products through the Systems that provide virtual and augmented reality
supply chain, as well as the shifting needs of the visualization features will continue to grow, fueled
shoppers they serve. by increasing capabilities in graphics processing,
screen technology (with reduced size and cost), and
Ubiquitous high-speed connectivity via network associated software processing. Virtual reality can
communication will become the norm, with consumer replicate the physical world in 3D with completely
demand fueling growth in the necessary structure machine-generated replicas — viewed via large
worldwide. This allows for the growth in distributed/ screens or head-mounted devices. Virtual reality can
cloud-based systems which can assume full show environments — like a new store layout — that
connectivity at all times.13 would be difficult, time-consuming or expensive to
produce, as well as enable rapid changes for easy
what-if visualization.20 Augmented reality overlays the
“real” environment with machine-generated content,
visualized on a screen or a headset with a camera and
potentially other sensors.21
9
size and performance, together with reductions in • Speech recognition. Microphones and associated
CPU and memory size, will make wearable devices speech recognition software will improve to allow
smaller and more user-friendly. This will allow many instantaneous understanding of verbal input to
new applications, including in-store capabilities for any device, in many cases replacing the need for
retailers. a physical input device like a keyboard or touch
screen. This will allow in-store devices to pass and
The implementation of radio frequency identification receive information from a user while leaving both
(RFID) technology will enable retailers to operate in hands free.24
real time to better serve the omni-channel shopper. • Motion detection. Infrared and other motion
RFID tags will be available on every shelf location detection methods will grow in capability to allow
for in-store picking, as well as re-stocking. The devices to track user movements accurately,
planogram location ID will be linked to the store shelf allowing alternative methods of input and machine
or location ID (such as the aisle). For fashion items, recognition of user activities. In-store uses
these floorplan locations could change dynamically will include the use of hand gestures to modify
every other week — so RFID data needs to be augmented reality views or automatically detect
updated based on these products’ movement within tasks — for instance, to provide supporting
the store. information when a user is resetting a shelf.25
In addition to supporting better availability at the • Camera surveillance. Cameras will become more
shelf level, RFID and location tags will enable more capable, with greater resolution and higher frame
targeted customer interaction, such as the production rates in a smaller size, allowing their placement in
of instant coupons. By capturing shelf-level data via more locations to monitor conditions and traffic
RFID technology and analyzing it, category managers patterns, as well as detect problems like out-of-
can continuously improve the effectiveness of in- stocks.
store promotions.
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Furthermore, the combination of RFID, in-store Ready or not, here comes the future
cameras and smartphone tracking will provide a
Today’s omni-channel environment is already forcing
detailed view of how consumers’ traffic patterns
major retail chains and their trading partners to
differ by profile. A complete picture of in-store
rethink their category management processes.
consumer behavior will emerge: where an item
The calendar-based plans of yesterday are quickly
was purchased, what route the shopper took, what
being replaced by an ongoing planning process
other items they bought. This information can be
that considers rapidly shifting market dynamics
combined with purchase history, purchase frequency
and constantly refines plans. This “high frequency”
and channel preference for a complete and current
approach to category management more closely
customer profile.
reflects the speed of retail, facilitating minor
adjustments and daily recalibrations.
Another area of promising technology innovation is
environmental sensors. These sensors, which provide
In the future, category management teams will only
input to mobile devices, will grow in capability.
grow in responsiveness, leveraging new capabilities
Retailers can use them for:
such as neural networks and Big Data to micro-
target shoppers, fine-tune individual stores, and
• Indoor positioning. Systems will improve to bridge the physical and digital worlds to personalize
accurately pinpoint a device’s location — even the shopping experience. Next-generation category
indoors, where no satellite-based system can be management solutions will automate the production
used. This will be particularly useful for in-store of localized plans, based on the availability of more
applications which require an accurate current granular data and high-powered algorithms and
location in store. analytics engines. Enabled by machine learning,
category managers will easily produce localized
assortments and planograms based on rules-driven
functionality.
10
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channel-for-dummies-ebook
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throughout the shopping journey. Understanding 115–133.
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representations by back-propagating errors. MIT Press, Cambridge, MA,
buying behaviors will allow them to think like a USA.
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affairs, retailers will need to be laser-focused and classification with deep convolutional neural networks. NIPS. vol. 1, 4.
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19. Deng, Li, and John C. Platt. “Ensemble deep learning for speech
an “always on” category management platform that recognition.” INTERSPEECH, 2014.
runs at the speed of retail, facilitates agile decision 20. http://voicesofvr.com/260-predicting-the-future-of-vr-ar-with-gartners-
making and supports rapid strategic shifts. brian-blau/
21. https://www.gartner.com/doc/3187631/market-guide-augmented-reality
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