The Bottom Line: Category Management

Operating a business in the age of coronavirus is a daily challenge. Although owners must change course and quickly adjust to factors beyond their control, there’s little room for error. Rather than relying solely on their instincts, astute retailers also depend on category management to make fact-based decisions about those products their customers want and need.

Typically, home improvement retailers organize their stores by departments and product assortments. The retailer may primarily focus on purchasing, pricing, selling, and restocking specific products and brands. Yet, taking a singular approach to the process tends to be reactive rather than proactive and is based on selling cycles and inventory availability.

However, actual category management operates at a higher level and takes a holistic approach. The first step is to bundle similar products into a single category to save money on procurement. The process then extends to visual merchandising, sales, and marketing. The entire category is central to the process, rather than a focus on individual products. The purpose:

  • Drive efficiencies within a singular category
  • Procure quality products and services
  • Manage pricing, and out-of-stocks
  • Generate more profits
  • Improve the overall customer experience

Remove inefficiencies among brands
Eliminating unprofitable competition between brands and suppliers can help retailers generate a higher profit on similar products. Organizing procurement based on a category instead of a product, brand, or what happens only at the store level enables the entire category to be viewed through the customer’s eyes.

While most stores are organized by department (Paint, Lawn & Garden, Housewares, etc.), negotiations are typically based on securing a specific product or brand. When products are procured and merchandised at the category level, planograms, and promotions are based on the big picture of driving sales for the entire category. As a result, everybody wins.

Building a Plan
The person responsible for planning should be an in-store expert who understands which products are in demand. He or she knows how to use data to forecast sales and determine what can be done to improve the category. The answers will be used to create planograms, in-store displays, and advertising promotions. Critical elements of a solid plan include:

  • Identifying the products to add in the category
  • Reviewing the procurement process and how much is spent
  • Analyzing the market and consumer behavior
  • Implementing changes and improvements to the category
  • Working the plan and measuring results

Categories should be segmented around the way consumers shop. Customers who come in for premium-quality paint will want to buy high-end brushes, rollers, and sundries. The correct approach will grow sales for the category, increase the size of transactions, and improve customer satisfaction.

Partnering with Suppliers
Manufacturers and retailers share the same goal—selling more products to their customers. During the inception of category management, manufacturers drove the process and stood at the forefront of integrating technology and research to analyze consumer behavior. Today, suppliers work with retailers and wholesalers to continually refine the process and share insights about the factors that drive category sales.

  • Shopper insights and consumer trends
  • Promotions and pricing analysis
  • Market analysis and forecasting

One area that requiresconstant attention is setting competitive price points.Retailers need to know what products are price sensitive and which ones are blind items where consumers are willing to pay the fixed price. Effective category management requires working with suppliers to negotiate pricing, delivery, and payment terms to maximize the profit margin.

  • Prices should be alignment with similar products in the category
  • Review prices set by competitors
  • Prices should be reasonable and reflect consumer expectations

Inventory Control
Selling larger quantities of products in a category and increasing the speed of turnover improves profitability. This requires getting the attention of consumers and motivating them to make a purchase. The first place to start is by creating engaging product displays and effective marketing. This doesn’t require promoting a large grouping of products. Push certain high-visibility items that are in-demand and are easily accessible to shoppers.

Fact-Based Decisions
Category management is fact-based selling. The effectiveness of promotions and different scenarios can be tested and measured. Many solution providers in the marketplace offer software capable of aggregating large quantities of data and providing enhanced reporting. Some systems can configure schematics for the entire store based on the requirements specified by the retailer. While these tools play a crucial role in category management, they are not the ultimate decision-makers. The information these systems provide is the starting point for a series of in-depth discussions that will identify opportunities to grow each category.

The Bottom Line
Being aware of changes in the marketplace is essential for retailers who want to stay competitive and remain relevant to consumers. Previously, the primary focus was building a successful brick-and-mortar store. Now, e-commerce transactions are another factor to consider when calculating bottom-line sales. Buying and selling are getting more complicated. Category management is essential to help retailers provide an enjoyable shopping experience while operating efficiently and profitably.

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