There is no single standard definition for any category. A category may be narrowly defined or very broadly defined, depending on many factors. For example, the category of chocolates may be as narrowly defined as to include only milk chocolates, or it may be broadly defined to include all types of chocolates toffees and chewy’s. The outcome of the category definition process is to decide what is included in the category and what is not. The key factor to be remembered is that the deciding factor is the consumer’s perspective.
The outcome of thus first step of the process of category definition needs to be clarity on a specific name for the category relating to the benefit or solution the category provides to consumers and the definition of the products and SKUs that constitute the category and finally the category’s structure/segmentation for example, the sub categories, segments etc that reflect how consumers typically make purchasing decisions within the category which can be termed as arriving at the consumer decision tree.
The next step would be to define sub categories
A pre requisite to defining the sub-categories is that trends behind the subcategories are known. Some questions that needs to be answered while defining the sub categories are:
1. What is the consumer need? – define the consumer need.
2. What provides a similar solution to the need?
3. What does the consumer see as substitutes?
4. What does the consumer see as inter-related?
5. Is the information measurable?
6. What is the group of products that comprise of the category? – SKU
Thus, the Category Structure is a reflection of the Consumer Decision Tree, and is the identification of the category’s key sub-categories segments and sub segments. This can be represented in the firm a chart /table as shown In Figure below:
Category > Sub-Category > Segments>Sub-segments
Defining the Category role:
The category role determines the priority and the importance of various categories in the overall business. This essentially serves as the basis for resource allocation. Typically, the assignment of the role is done after taking into account the consumer, distributor, supplier and marketplace. Similarly it needs to be understood that product categories themselves have different characteristics for examples some categories may be dominated by premium brands, whilst others might be more value drivers. If a category is composed largely of premium brands, then most of the brands in the category are, or should be, quite profitable. If, on the other hand, the category is comprised mostly of value and own label brands then the opportunity to obtain higher profit margins will be lower for both the retailer and the supplier. While determining the category role, the retailer should also take into consideration the role that will be played by the category in the store.
Within a category, products will be assigned sub-category roles. Some typical examples might include:
1) Traffic builders – products with a high market share
2) Transaction builders – products frequently purchased on impulse (frequently complementing routine purchases).
3) Cash generators – products with high stock turns and margins.
4) Image creators – products that are promoted with some feature that makes them unique
5) Excitement creators – products with high impulse appeal.
The Category Management best Practices Report suggests a set of four consumer based category roles.
In such case, the retailer is the customer’s first choice for specific products. Destination categories are those that the retailer uses to help itself as the store of choice to the consumers by simply offering better value of the consumer.
A category of products that is defined as a destination category needs to consistently deliver superior value to the target consumer and lead in areas of turnover, market share, consumer satisfaction, service level and operating expenses management. For example a retailer at choose coffee, pasta, paper, bread, soft drinks and certain perishables among its destination categories. For most retailers, 5-7% of their categories are assigned a Destination role.