If you’re looking to improve your product sourcing strategies and increase margins, consider adding category management to your inventory management toolkit.
Category management can assist your retail team in discovering new products, establishing connections with buyers and suppliers, and executing the procurement process more efficiently. While you can perform category management on its own, it's most effective when combined with a comprehensive product lifecycle management plan. This article discusses the benefits of incorporating category management into inventory management strategies, as well as the eight-step cycle for implementing category management.
Note that the category management process is not the same as your “product data management system,” which may or may not be capable of categorizing goods for proposals. Additionally, it’s not synonymous with “vendor management,” which refers to supplier interactions.
What is category management?
“Category” is a set of items sharing a single trait that a business will benefit from purchasing as part of a single transaction. Category management is the practice of grouping similar items into a single category or business unit and then focusing on procurement, merchandising sales, and other processes around pre-defined categories. Category management can refer to the separation of direct and indirect products or services, or it can refer to the division of products or services based on value, supplier, kind, or volume. The makeup of the individual business determines the trait items should be grouped by.
- Direct costs are directly tied to the end product or service, such as raw materials, individuals manufacturing the product, and product-related charges.
- Indirect: Costs not directly related to the end product or service, such as corporate insurance, power, water, and business premises - many commercial overheads are classified as indirect costs.
The basic idea behind category management is approaching each category as its own mini business with specific goals and strategies. The focus is on the overall turnover and profitability of the category rather than individual products. For example, this technique can assist merchants in increasing profits on similar products, including consolidating procurement activities under a single category rather than by a particular brand or supplier.
You can also utilize category management to improve consumer satisfaction. Most grocery stores, for example, are organized by category (dairy, fruit, meat, and so on), making it easier to navigate stores and find specific products. Furthermore, management has the authority to make modifications at the category level. They can roll out new promotions, planograms, and other initiatives across many business units.
The Eight-Step cycle
The category management process is separated into eight steps. A prominent marketing and business management specialist Brian F. Harris developed this model. This structured and formal category plan with specified steps is frequently called the Brian Harris model.
Step 1: Identifying the categories – Set the parameters for your category based on the behavior of your clients. How do they move around the category? This will assist in product selection, segmentation, and other areas.
Step 2: Evaluate the Category Role – What is the relation between this category and the more extensive portfolio of the firm? What is its overall significance and impact? You may think about this from both a sales and a volume angle.
Step 3: Track Performance – Examine how the category performs across multiple dimensions: retailer, in the market, in comparison to other categories, and so on. This multi-lens technique will provide balanced data for the following steps.
Step 4: Set objectives – Any company project should have clearly defined goals to ensure success. Your marketing strategy is no exception. Set the category’s KPIs by defining your benchmarks and objectives. Sales, volume, market share, and assortment are all strong starting points.
Step 5: Development a Strategy – Consider your company’s marketing strategies and how stores will represent the category. It would be best if you continued to focus on improving market share, sales, and foot traffic (and other specialized goals for your industry).
Step 6: Designate Category Tactics – Establish explicit and repeatable actions to improve category tactics. Think about improving your products, location, advertising, and supply systems.
Step 7: Implementation - Once you’ve determined your strategy and tactics, you’ll need a concrete plan for your team. Compose an outline for tactics, category roles, strategies, and objectives.
Step 8: Review - Review is not a one-time event but a continuous process. It is intended to be a cycle in which you constantly analyze and improve your process. In this final stage, measure your results and make any necessary changes to the process as you go back through the processes.
Tools of category management
Building effective category management processes involves making a series of informed strategic decisions. Your employees need to be aware of what is happening in the store and have access to reliable, real-time retail information about their product categories. This information includes data on planogram compliance, out-of-stocks, display compliance, facings, adjacencies, and other related topics.
Like any other supply chain process, category management requires a thorough understanding of your customers’ behavior. What are the most popular products? Which promotions and displays are most effective? What do they consider to be good value in this category? Brands and retailers must conduct regular surveys of customers or obtain data from suppliers to gather information on consumer behavior and purchasing trends.
With this information, brands and retailers can develop targeted strategies for the category. They can determine which products to stock, how to price them, and how to promote them effectively. By understanding their customers’ needs and preferences, they can tailor their assortment and marketing efforts to drive sales and increase customer satisfaction.
Every business is unique, and the tips presented in this article are only general guidelines. Successful category management requires meaningful data to support and guide your business decisions. Fortunately, numerous tools are available to help you take control of your category management program and set your organization up for success. Category management can help your retail team discover new items, establish buyer/supplier partnerships, and expedite procurement.
To maximize the benefits that category management brings to your business and find the optimal strategy, consider using LEAFIO Assortment Performance. This tool can speed up and simplify business processes using AI and make assortment management more transparent for your company without long learning curves.
With LEAFIO Assortment Performance, you will:
- Build a detailed strategy for category management for each year and quarter.
- Receive AI tips that highlight what you should address to achieve your goals.
- Make automatic intelligent clustering of the stores within your chain. Or you can cluster them “manually” based on your needed parameters. Thus, you will track the indicators of specific outlets that you need.
- Analyze the details of the categories via various reports on inventory, SKU distribution, weekly, planned-factual performance, new SKUs, general statistics, etc. Thus you will determine which SKUs are underperforming, how new products perform, which SKUs are missing in which stores, and much more.
- Generate reports on suppliers quickly, analyze their performance, and make decisions on further cooperation.
- Streamline assortment management business process.
To get more details, contact us for a demo presentation.