Category Management

Every retailer has to make some fundamental choices in terms of the merchandise to be stocked. More than a decade ago, the concept of category management revolutionized retailing and its fundamental approach towards merchandising. Category Management is a way of managing products on the level of a product group, rather than on the level of single product. At the core of the Category management concept is a focus on a better understanding of consumer needs as the basis for retailers and suppliers strategies goals and work processes.

The evolution of the concept of category management is closely linked to the development in the field of supply chain management and technology. Technology palsy a key role, as information is a key enabler. The idea is to use this information to tailor the product offering to consumer needs. The offering is then measured in terms of sales, cost and returns per square foot. The whole process is aimed at providing customer satisfaction and at the same time, maximizing returns for the organization. This focus causes a re-evaluation of many prevalent business practices, which may have obstructed a greater understanding of consumer needs and opportunities

We start this article by understanding the concept of category management and then look at the reasons for the emergence of the concept and finally, at the business process in which it occurs.

The Concept of Category Management:

Category management is considered as the new science of retailing for three basic reasons. First, it involves a systematic process that has been shown to be robust in various retail situations across the US, Europe, South Africa, Australia and Latin America. Second, it emphasizes decision making based on complex analyses of consumer data, scanner data and market level syndicated data. Third, category management replaces the brand bias that stems from a supplier’s interest in maximizing market objective view based on the consumer’s desires.

Quite simply, category management involves organizing and managing promotions merchandising and distribution activity around the way consumers view and buy a product. A more formal definition would be Category management is a retailer supplier process of managing categories as strategic business units (SBU’s) producing enhanced results by focusing on delivering consumer value.

Which then brings us to the question – what is a category? A category is a distinct manageable group of products or services that consumers perceive to be inter related and /or substitutable. It must be noted here that the focus of both the category and category management is the consumer and providing her with a range of products and services that offer more value.

Category management can be defined as the distributor/supplier process of managing categories as strategic business units, producing enhanced business results by focusing on delivering consumer value. Thus, a category is a basic unit of analysis for making merchandising decisions. In general, a category is an assortment of items that the customer sees as reasonable substitutes for each other. The fundamentals of category management revolve round managing categories as strategic Business units.

Brain Harris describes category management in terms of a three step definition encompassing a philosophy, a process and an organizational concept:

First, it is philosophy for strategically managing a retailer’s or a supplier’s business that recognizes categories as strategic business units for the purposes of planning and achieving sales and profit goals. Inherent in this philosophy is the belief that simply managing at the departmental level (grocery, meat, health, and beauty care etc) does not provide adequate strategic focus.

By adopting category management, the retailer seeks sustainable competitive differentiation and advantage by competing on a category by category basis. By managing the category as a strategic business unit, the retailer aims at providing more value to customers. While there are variations the eight step approach developed by The Partnering Group had been adopted as best practice by ECR consortia in the US, Europe and Brazil.