Different types of Category

Preferred / Routine category:

Here, the retailer decides that he wishes to be the preferred provider of these products to the target consumer. Typically, this category may comprise of products that the consumer purchases as a matter of routine and would include things such as toothpaste, toilet soap, juice, milk, cereal, detergent and pet food etc. The retailer has to ensure that he delivers consistent, competitive value to the target consumer. The preferred category plays a primary role in delivering profits; cash flow and ROA (return On Assets). Typically, 55-60% of a retailer’s categories have a preferred role.

Occasional / Seasonal Category:

Occasional/Seasonal categories are those that are purchased infrequently or follow cyclical patterns. For example, mangoes sold by a particular food retailer during the mango season would be a seasonal category. An occasional / seasonal category helps reinforce the target consumer’s image of the retailer with the aim of delivering frequent, competitive value to the target consumer. For most retailers, 15–20% of categories are managed with this role.

Convenience Category:

The convenience category helps the retailer reinforce the target consumer’s image of the retailer as the place for one stop shopping. Convenience categories are those that the consumer fins convenient to pick up at a neighborhood retailer, rather than visiting another retailer who may offer a wider selection or better prices. Examples of convenience categories could be home cleaning products, car products, etc. This category is important for profit generation and margin enhancement. And typically, 15 – 20% of categories are assigned this role.

Let us understand the concept of Category Roles with help of an Apparel retailer, whose category roles could be as depicted below:

Destination category:

Women’s wear
Formal wear
Indian ethnic wear

Preferred category:

Men’s formal wear
Men’s casual wear

Occasional Category:

Men’s ethnic wear

Convenience category:

Accessories – belts, socks etc.

Some retailers may also define categories based on their functionality. For example consumer durables retailer Vivek Ltd creates categories based on the type of products it retails and has four such categories:

1) Brown goods: which include products such as TVs audio systems etc
2) White goods; which include products like refrigerators, washing machines etc.
3) Domestic & Lifestyle appliances: which include items such as fans, grinders etc
4) IT and computer related products.

Typically retailers adopt a cross category analysis, which compares the targeted category to a group of similar categories (e.g. categories within the same department, aisle etc) for determining the role of the category. Cross category analysis is a quantitative and qualitative analysis which uses various types of consumer, retailer and market data to answer four key questions:

1) How important is the category to the retailer’s target consumer?
2) How important is the category to the retailer?
3) How important is the category to the retailer’s competitors?
4) What is the category’s outlook within the retailer’s market?

Subsequent to the assignments of category roles, planning needs to be done for the allocation of a retailer’s resources – ranging from inventory, shelf space and promotional / advertising investments to capital and management’s time. For a retailer, the resource allocation process takes place amongst and between the category managers and their categories strategically and improving its return on assets. For example, a category manager and his suppliers may conclude that in order to achieve the destination role for their category, they need to allocate more resources in the form of shelf space and promotion activities. On the other hand another category manager and his supplier may conclude that they can achieve the role of preferred for a particular category with fewer warehouse slots, retail shelf space and reduced display activity.