Category management defined

• Category management is the process that involves

– Managing product categories as business units
– Customising them on a store-by-store basis to satisfy
customer needs

• Implications
– Category manager is a profit centre
– Understanding customer needs is of paramount importance
– Will need to study and understand the target market
– Keep the Store positioning in context
– Categories will need to be customised, store-by-store
 Creation of buying strategy & policy

Mission Statement
To make Spencer’s the first choice for great value & quality food products

Corporate Strategy
To gain a X% of the organised market in the next 3 years

Buying Strategy
To develop a product range that customers find distinctive & offers value to customers

Buying Policy
Establish working partnerships with suppliers, sharing management information & working together in areas
of common interest, such as product development, packaging, promotion, in-store availability

Visual Merchandising
Pricing Policy Branded / private Supplier policy
merchandising policy

First price point to be 5% lower Increase the share of Buy products from manufacturers
than the competitor Private labels by Y% than from intermediaries
Define Categories & Sub Categories

 Sleepers  Winners
 Identify key products within  Continue current policies
category  Be alert to adoption of new
 delist slow movers products
 Give quick movers more  Minimize operational
shelf space problems like “out of stock”
 Optimize margin mix  Optimize margin mix

 Questionable
 Limit product mix to core
 Opportunities
assortment and delist  Harmonize product mix with
marginal products market trends
 Look for price raise  Improve price image via low
 Minimize shelf space at prices for key products
category level  Maximize shelf space at
 Transfer logistical and category level
operational work to third  Give promotional support to
parties key items
Category Tree - Deodorants

Fragrance

Deodorants Cologne

Anti
Deo’s
Percipients

Spray Roll ON Sticks Aerosols

Male Male Male Male Female Unisex

Female Female Female

Unisex Unisex Unisex

Source: HLL
POWDERED MILK
STAPLES
FLOURS
RICE
PACKAGE MILK
 Category Assessment

The main components of category assessment include:

Components Types of Information

Consumer • Shopper demographics

• Shopping behaviour
• Category drivers – price, quality, brand
Market Level • Market shares
• Sales trends
• Competitive activity, e.g., pricing, promotions, etc
Retailer Level • Sales trends, e.g, seasonality, etc,
• Space allocation
• Profitability
 Managing Category Life-Cycle

• Category management demands a better understanding of the

category and recognizing its vagaries.
• High degree of responsiveness to respond to structural and
behavioral changes e.g relocating merchandise within a store,
placing it alongside with complementary products or categories.
• Use of SCAN to be a better spotter of changes
– Shop….observe how your staff interacts with shoppers; could use
mystery shoppers
– Converse….with consumers, sales staff, friends & vendors and try to
find out what’s new, where people/they are shopping and why. What
they think of your store.
– Act….like a customer, shop like one, listen to music, watch a movie,
pick up a book and see what’s the trend; do you understand your
customers better?
– Notice….observe, observe and observe; become a cultural sleuth.
What music is topping the charts, what kind of new products are
making waves, which brands are being lapped up and which aren’t.
 Category Management Matrix
Less than `Y’ / wk More than `Y’ / wk

Less than More than

Product Profitability
`X’ / item `X’ / item
High Potential Winners

Under
Traffic Builders
Achievers
Sales
 High potential
- Required  promo, better position in store, more exposure,  displays
- Create interest & excitement around the item to move it into a winner
category item.
 Winners
- Capitalise by  promo, prominent position, better displays & visibility
- Cash cow
 Traffic builders
- Review prices,  position, move closer to high potential items, review
space.
 Under achievers
-  Promos, move from prime position,  prices, consider dropping item.
 Merchandising

• “ I believe that retail merchandising is actually

very simple: it consists of two factors,
customers and products. If you take good
care in the buying of the product, it doesn’t
come back. If you take good care of your
customers, they do come back. It’s just that
simple and just that difficult…..”

» Late Stanley Marcus, former CEO of Neiman Marcus

 Merchandise Management
– Experiences of a Buyer at Walmart

 I am one the 7 buyers for the toys department.

 The categories I handle (large dolls, plush toys etc.) will
produce $450m sales this year.

 I am responsible for sourcing new toys, promoting them thru

our stores, getting them to the right stores at the right time &
manage the assets like a portfolio.
 Buying merchandise is like making a series of investments –
same risk-return trade offs, have to watch the performance of
the portfolio – buy more of what’s hot & selling & mark-down /
get rid those falling short of expectations.
 Experiences of a Buyer at Walmart

 E.g.
– A toy using new tech was introduced at the New York toy
fair.
- decided with senior management to support this toy
- put together a plan to ensure Walmart would be the first to
have this toy in significant quantity.
- worked with the manufacturing to get sufficient quantity
ahead for promotions.
- worked with marketing to develop a marketing / promo
concept & deploy appropriate support material – leaflets /
packaging / promo items / advertising to create
excitement at stores.
- being a new toy it was a high risk item but fortunately it paid
off !
 Buying is being a visionary – reacting to trends, translate
them into merchandise that will draw customers.
 Merchandise Planning
Factors in Deciding Merchandise Plans
1. Forecasts: Projections of expected sale for given period.
Variables would be:
- Overall company projections for the period
- Product category projections
- Item projection
- Individual store projection

2. Innovativeness: A firm that carries new goods & services

and plans for upcoming trends. Variables would be:
- Target market & it’s behaviour
- Product related trends
- Stores positioning
- Degree of risk
- PLC – staple item / fashion / fad
- Allocation of resources
 Merchandise Planning (contd…)

3. Assortment: Selection of merchandise that a retailer

carries which is a function of variety, breadth & depth.
4. Brands vs. Private Label: A proper mix of brands &
private labels.
5. Timing: When is inventory required in the store, would be
dependent on
- Seasonal relevance
- Order & delivery lead times
- Stock turnover rate
- Provision for special / urgent orders
- Prices & discounts
Develop a criteria for product selection
• Fit into the stores format…every product category must be in sync with what
the Store prophesizes to offer, especially in small format stores
• Demand for the item…should have sufficient demand in the target market,
to justify the effort and allocation of space
• Fast moving sizes/designs…especially products offering multiple size
SKU’s, must ensure that primarily the fast movers are included; would need
to take a call on what can be omitted or what is essentially required
• Popular items…especially those preceded by high velocity launches, must
be watched closely
• Stores image…the category or item must be in sync with the stores image,
neither over or below
• Impulse items…the only exception, if it can generate profit
• Cannibalisation…should avoid internal conflict, to the extent possible
between brands
• Item profitability…must ensure the primary purpose is not lost sight off;
trade-offs are possible and should be explored.
 Model Stock Plan : Mens Shirts
Dependent Variables
 Customer profile – psychographic / demographic
 Buying behavior – occasion / frequency of purchase/ budget
 Stores positioning vis-a-vis product product category

Product Attributes – Some Variables

Type Party, casual, sports, office wear 4

Size S, M, L, XL 4

Sleeve Long, short 2

Collar Button-down, normal 2

Color Blue, white, beige, floral, black 5

Fabric Pure Cotton, poly-mix 2

Price 3 Price points 3

 Model Stock Plan : Mens Shirts (contd…)

If the store decides to keep one SKU of each type its initial inventory will be
4x4x2x2x5x2x3 = 1920 SKU’s
@ Avg. cost of Rs.300 = Rs. 576, 000

Clearly the final decision will be based on the dominant dependent variable(s) and
a retailer may not be able to offer the entire range but offer a more selective
collection.

Successful retailers know that they will have to allow some customers to walkout
empty handed.
Ask yourself: What does the customer think
about your product range/store?

• Could you find what you were looking for?

• Do you think our products are fairly priced?
• What attracted you to the products/our store?
• Are you regularly shopping with us?
• Where else do you shop for such products?
• Have you bought products from us in the past? If yes
were you happy/satisfied?

• Answers will provide you with what the

customer thinks about your offering.