If you are looking for ways to improve your product sourcing strategies and increase margins, you should explore category management. This article will explain how category management will assist you in achieving more than just supply optimization.
Category management can help your retail team discover products, establish buyer/supplier connections, and execute the procurement process more efficiently. While you can do category management independently, it is most effective when combined with a comprehensive product lifecycle management plan.
Remember 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. It is also not synonymous with “vendor management,” which refers to supplier interactions.
What is category management?
“Category” could be defined as any set of similar things that a business wishes to purchase 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 procurement, merchandising sales, and other retail efforts on the category. 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 nature of categories.
- 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 this category management is to define the category’s benefits for the consumer while eliminating inefficiencies and unprofitable competition among various brands and suppliers. 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 explore stores and discover 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 steps to make it easier to follow. Brian F. Harris proposed this model in 1997. This structured and formal category plan with specified steps is frequently referred to as 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: Strategy Development – 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 a defining plan 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
Effective category management processes rely on various retail industry tools and resources. Professionals must be aware of what is happening on the shelf. As a result, they require reliable, real-time retail information on their product categories. This can include data on planogram compliance, out-of-stocks, display compliance, facings, adjacencies, and other topics.
Stakeholders will also want to stay updated on the prices of products in their category. Price adjustments are standard in category tactics, so it’s essential to understand how other items are priced, what other retailers are doing, and what the market trends and consumer expectations are regarding price. Category processes can deliver the most value to both their clients and their companies in this manner.
As with any other process in the supply chain, category management requires extensive knowledge of customer behavior. Which products are popular among consumers? What are the most effective promotions and displays? What do they perceive to be good value in this category? Brands and retailers must conduct regular surveys of customers or resort to data suppliers to acquire information on consumer behavior and purchasing trends.
Every business is an individual case; the tips presented in this article are only general guidelines. Successful category management necessitates meaningful data to back 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 assist your retail team in discovering items, establishing buyer/supplier partnerships, and expediting the procurement process.
To dive deeper into your category, you could use LEAFIO Assortment Performance. With this tool, you will speed up and simplify business processes with the help of AI and make assortment management more transparent for your company.
With LEAFIO Assortment Performance, you will:
- Build a detailed strategy for category management for each year and quarter.
- Receive AI tips which 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 the parameters you need. 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 take decisions on further cooperation.
- Streamline assortment management business process.
To get more details, contact us for a demo-presentation.