There are six components that are key to the functioning of category management. Two of these are considered essential, without which category management cannot be started and these are therefore called core components. The other four are needed to enable the process, without this category management can be started but not institutionalized on an on-going basis.
The two core components are strategy and business processes. The enabling factors are performance measurement, information technology, organizational capabilities and co-operative trading partner. This illustrated in Figure below.
Performance measurement >> Strategy >> Organizational Capabilities
Trading Partner Relationships >> Business Process >> Information Technology
The core component strategy is linked to the company’s overall mission and goals. The business process, which evolves, is a result of these strategies. Category management is generally viewed as step by step planning and implementing process that helps retailers and suppliers to achieve both performance based objectives and longer term strategic aims. The business process focuses on how work has to be done within the organization and with its trading partners rather than focusing on what is done.
The Category Management Business Process:
The category management business process is a structured, measured setoff activity, designed to produce a specified output for the suppliers, retailers and the consumers. It implies a strong emphasis on how work is done within and between organizations, in contrast to a singular and exclusive focus on the specific products or services delivered to the consumer. The process therefore, has specific sequential activities which need to be performed keeping in mind the output that needs to be generated
The category management process creates a balance between product and process investments, with attention to work activities throughout the total systems, from supplier to retailer to consumer. The process is a common capability for mutual advantage.
The process of category management has eight distinct stages, which are illustrated in Figure given below
Category Review >>
Category Definition >>
Category Assessment >>
Category Scorecard >>
Category Tactics >>
The steps involved in this process are explained briefly below:
The definition of the category is the first step in the category management business process, and it has a significant impact on all subsequent steps. While the way in which a category of merchandise should be defined has yet to be fully established, the Best Practices definition of a category given by the Partnering Group, is a distinct manageable group of products / services that consumers perceive to be interrelated and /or substitutable in meeting a consumer need.
The category definition should be based on how the customer buys, and not on how the retailer buys. Before starting with the process of category definition of the word category the supplier understands the category and with the consumer knowledge he has, usually plays a key role in developing the appropriate definition and segmentation structure of the category. This step decides the products that represent a category, sub-category and major segmentation. At this step, the retailer assigns products to the various categories based on factors such as consumer usage and packaging. The category definition should include all products that are either highly substitutable or closely replaced. Let us consider an example of how a category can be defined.
Let us assume that the basic need of the consumer is well groomed and clean hair. The products that could fall into the consumer’s consideration set would then include shampoos, shampoos and conditioners, soaps for washing hair, various gels and lotions for setting hair and in many cases, hair dye or hair colorants. The second stage would involve identifying what could be possible substitutes for each other from the consumer’s perspective. Thus, substitutes from the consumer’s point of view could be shampoos and shampoos and conditioners The next stage is to consider what is interchangeable from the point of the retailer, which could be soaps or cleaning hair, shampoos and shampoos with conditioner. The determining factor now is the level of measurability and manageability of the category. At each stage, a process of filtering is done to ensure that the category thus defined is as close to what the consumer is likely to see and buy as substitutes.