The need to reduce costs, control inventory levels and replenish stock efficiently led to concept of Efficient Consumer Response (ECR) taking shape in the grocery retail industry in Europe and America. By focusing on a superior understanding of consumer needs, category management provides renewed opportunities for meeting consumer needs and at the same time for achieving competitive advantage as well as lower costs through greater work process efficiencies.
A number of specific industry trends are driving the emergence of category management. The key reasons are:
1) Consumer Changes
2) Economic and Efficiency Considerations
3) Competitive Pressures
4) Information Technology advances
Let us understand these changes and their implications:
Consumer needs and lifestyles across the world have changed dramatically over the past decade. In addition, population growth rates in Europe and many parts of the developed world have declined and consumer spending power continues to shrink, impacting at homes food spending. Given these challenges, retailers and suppliers have been forced to better understand consumer needs and to meet those needs more effectively. Many retailers and suppliers have a growing interest in understanding the composition of their loyal consumer base and in defining the purchasing behavior of loyal consumers. Awareness is growing that failure to recognize and reward consumer loyalty can be costly.
A retailer who adopts category management is believed to focus on the consumer. This ensures that the retailer is careful while describing categories and in the way these categories are managed at the store end. This focus affects simple processes as those used to describe categories. It takes into account the fact that consumers come to the store to satisfy needs which are more likely to be defined in terms such as pain relief, breakfast food, fresh breath, etc. The use of category descriptors that do not relate in direct ways to how consumers define needs can cause a lack of connection between how consumer come to buy and how retailers and suppliers do to market in attempts to meet consumer needs. Category management helps identify this lack of connection by emphasizing that consumer defined needs and their solutions should be at the heart of decisions on how products and categories are marketed.
Various practices may lead to a difference in the understanding of how the consumer actually buys and the manner in which the retailer thinks that the consumer buys. Category management draws attention to various kinds of unproductive departmental separations by emphasizing that categories should be defined first and foremost by consumer need and not by departmental separations. The traditional approach may not really help the retailer in today’s environment. Effective responses to the competitive threats cross departmental planning. By focusing on consumer needs and solutions, category management provides an approach for addressing these issues.
The emergence of new formats of retail like hypermarkets and category killers and the breaking down of global boundaries requires retailers to become more competitive. Success to these formats has typically come at the expenses of traditional retail formats. This type of competitor focuses on a category, not at a total store level. Specially retailers identify a category opportunity and exploit it by offering superior consumer value in that category.
To compete effectively against these new forms off competition, carefully devised and implemented strategies at the category level are essential. This is the essence of the category management process. It provides the necessary competitive perspectives management methods and tools to meet the challenges of these new category focused competitive formats.