Category strategy development is the step in the category business planning process when strategies are developed to deliver the category role and the category performance targets. The purpose of this step is for the retailer and supplier to develop strategies that capitalize on category opportunities through creative and efficient use of the resources that are available to the category. Strategies may relate to marketing and product supply strategies.
The marketing strategies address the key question of how – working with its suppliers it will market the category and its components (sub-category, segments etc) to achieve the category role and performance targets. The seven most typical category marketing strategies are:
This strategy focuses on drawing consumer traffic to the store. Such a strategy may be suitable for products that have a high amount of price awareness and household penetration and require frequent purchases.
This strategy focuses on increasing the size of the average transaction in the category, or total store transaction (market basket). Products with a large transaction size, which are attractive to large families and may be subject to impulse purchase, would do well in such a strategy.
Turf Defending :
This strategy aggressively positions certain parts of category to protect the retailer’s business in the category from targeted competitors. Products that are frequently purchased by the target consumers are highly price sensitive and are also frequently promoted by the competition may require turf defending strategies.
This strategy focuses on using parts of the category to generate profits. Products which generate higher margins and have a substantial amount of loyalty and which are not really influenced by price fluctuations come under this category.
This strategy focuses on using parts of the category to generate cash flow for the retailer. Cash generating products are fast turning products, with an efficient supply rate and low inventory turnover.
This strategy is used to communicate a sense of urgency or opportunity to the consumer. New products, seasonal items and rapidly growing segments or SKUs can be under this category.
This strategy is used in a category to help the retailer communicate its desired image to the consumer, in one or more of the following image areas:
The Selection of the right mix of strategies within category is one of the most important decisions the category manager and a supplier make in the category management process. The assignment of strategies provides the essential guidelines tactics (ranging, pricing, promotion, shelf presentation) will later be employed. The selection of appropriate strategies should be guided by the following:
1) Strategies must be linked to Category roles.
2) Strategies are implied from category performance measures and targets
3) Certain characteristics of parts of the category suggest specific strategies.
The major result of the category strategy step is the selection of the appropriate mix of strategies and determination of how these strategies will be deployed against specific components of the category. These decisions then pave the way for the selection of the specific tactics to execute these strategies.
It may be possible for a supplier to do a fair amount of value addition by assisting retailers develop strategies, depending on the role of a category. For example, a product may play a destination role in one retailer and a convenience role in another. Before engaging in the business process with the retailers, a supplier could work on category strategy recommendations for all appropriate category roles, and for all appropriate retailer formats (hyper markets, supermarkets, etc). These strategies could include recommendations for marketing (traffic building, turf defending etc) as well as product supply strategies.
For example, a supplier of a health and beauty care category might develop strategy options for
1) A supermarket choosing a convenience role
2) A hypermarket choosing a preferred role and
3) A drug choosing a destination role.
These three options would generate different marketing and product supply strategies. As a result of this work, the supplier has a strategic plan it can use with individual retailers, to help them develop appropriate category strategies.