Retail Operations and Store Management-II UNIT 9 CATEGORY MANAGEMENT Structure 9.0 Objectives 9.1 Introduction 9.2 What are Categories 9.3 The Concept of Category Management 9.4 Relationship of Different Goals with the Category Management Process 9.4.1 Example of Different Goals for a Retail Business 9.4.2 Category Management as an Independent Function 9.5 Influence of Category Management on Other Functions 9.5.1 The Category Management 8-step Process 9.6 Need and Benefits of Category Management 9.6.1 Who Benefits from Category Management? 9.6.2 How is Category Management Used? 9.7 Let Us Sum Up 9.8 Keywords 9.9 Answers to Check Your Progress 9.10 Terminal Questions 9.11 Further Readings 9.0 OBJECTIVES After going through this unit, you should be able to: ● discuss the concept of Category Management; ● discuss the category and Their Definitions; ● analyse the relationship of Different Goals with Category Management; ● discuss the influence of Category Management on Other Functions of Retail; and ● describe the Need and Benefits of Category Management. 9.1 INTRODUCTION Category management has become an important concept in the current scenario. You must be witnessing that a small retailer has to deal with many different products with different characteristics making the task further difficult for the retailer. Retailers have to handle retail categories at many different levels like product class, product categories, sub-product categories, styles, brands, SKUs. Further at the level of strategic management, group level, country and regional level, and finally at individual store level. Moreover, at each of these levels, the categories need to be analysed on several parameters to reach a meaningful decision on the fate of the concerned category in the store. Though it may seem at first glance that retail category management is similar to product management in manufacturing and marketing companies. It is not so, when one looks at the environment 210 and conditions in which these categories are to be managed. In the year 2007 the Indian Category Management retail market size was estimated at Rs 1330000 crores with an annual growth rate of 10.8%; of this the share of organized retail sector was estimated to be about 5.9% at Rs 78300 crores. For the year 2010 organised retail sector is estimated to be Rs 230000 crores, constituting 13 per cent of the total retail market. With such growth prospects for the retail sector, category management and related strategic issues assume tremendous importance for every stakeholder, practitioner and player at all levels in the retail sector. In this unit, you will learn the concept of category management, its definitions, its relationship with different goals, its influence on other retailing functions, and above all its benefits. 9.3 WHAT ARE CATEGORIES Let us try and understand how category is defined. The Partnering Group has defined category as “a distinct manageable group of products or services that consumers perceive to be inter-related and /or substitutable in meeting a consumer need”. For example in a broad product class Women’s Clothing the different product categories could be Dresses, Jeans, Trousers, Skirts, etc. In this example Dresses, Jeans, Skirts are referred as categories because each of them refers to a distinct grouping of items which has similar characteristics and appeal to a distinct kind of target consumers who have more or less similar likings. But as Levy & Weitz have explained that each retailer and their suppliers may define the categories with respect to the consumers’ preferences and situation pertinent to a given store. For example Shampoos and conditioners may be allocated under different categories like Hair Washing and Hair Conditioning respectively, or may be combined under a single category called Hair Care; similarly paper towels may be assigned to ‘Paper Products’ category or ‘Napkins’ category based on the purchasing behaviors of consumers and importance of a given category to consumers. Generally it is being observed that higher the importance of a given product in terms of either sales volume or sales value or in terms of profitability in rupee value the chances are that such a product may be identified as a separate product category or may be combined with another product of similar type and characteristics. For e.g., Parallel Jeans and Narrow Jeans may be combined under the ‘Jeans’ category. A product may be combined with another product or with group of products if it is found that such products individually do not contribute much to the profitability or to sales volume but needs to be there to satisfy a certain class of consumers then such a product may be classified under a broad product category; for e.g. Jeans and Trousers may be classified under a broad classification ‘Bottoms’ category. Some retailers may define categories in terms of brands. For e.g. Louis Phillipe may be a separate category and ‘Park Avenue’ may be another. This may be necessary as the taste of consumers of Louis Phillipe are different than those of Park Avenue; and hence, needs to be displayed in a particular way so as to reflect the given brand personality. Where brands represent separate categories all the products of a given brand are grouped in the brand-wise category and all such brands will be further grouped in a broad product class for the purpose of analysis. 211 Retail Operations and Store Management-II 9.3 THE CONCEPT OF CATEGORY MANAGEMENT Category management has, for the longest time, remained hidden in the realm of product management, considering that the latter concept has been used more commonly, especially in the context of manufacturing and marketing, by FMCG companies, where this responsibility rests with a product executive or manager. Product manager is usually responsible for coordinating with other functions such as sales, marketing, production and administration so as to ensure the right placement of the product in the market – at the right price and at the right time, with necessary support on the marketing and promotion fronts. With the advent of large format store retailing in the past decade, the concept of category management began taking roots with its own theory and practice. There are various definitions of ‘category management’, some of which need a closer look in order to understand the concept clearly. It is a process by which a particular product group/sub-group is managed against various or selected dimensions (various product or category features like price range, product content or material used, product usage, etc.) so as to achieve right stock levels vis-à-vis actual sales and, thereby, achieve the desired profitability goal. Category management is essentially a retailing concept in which the total range of products sold by a retailer is broken down into discrete groups of similar or related products known as product categories. Examples of grocery categories may be: grains, soaps and detergents, oil and ghee, toothpastes, etc. For an apparel seller the major categories would be men’s apparel, women’s apparel and kids’ apparel. These categories can be further broken into sub-categories as per the consumer buying trend or grouping of products under certain features or dimensions. The idea is to run each category like a “mini business” in its own right, with its own set of turnover and/or profitability targets and strategies. An important facet of Category Management is the shift in relationship between retailer and supplier: instead of the traditional adversarial relationship, the relationship moves to one of collaboration, exchange of information and data and joint business building. The focus of all planning and discussions is centered on achieving higher turnover of the total category and not just the sales of the individual products therein. Suppliers are expected to suggest only the product ideas or promotions which will ultimately benefit the concerned category and the shoppers of the said category. “Quite simply category management involves organizing and managing promotions, merchandising and distribution activity around the way consumers view and buy a product”. Another definition of Category Management is “the distributors’/suppliers’ process of managing categories as strategic business units, producing enhanced business results by focusing on delivering consumer value”. Category management has emerged as a strategy to aid retailers in successfully competing in each retail category to enhance shoppers’ loyalty and profitability. As a cornerstone of efficient consumer response (ECR) initiatives, category management is designed to help retailers with the right mix of products, at the right price, with the right promotions, at the right time, and at the right place. 212 As it is understood from the above definitions, one needs to be clear about the dimensions Category Management on which a category needs to be analyzed so as to understand the sales trend of a category against a particular dimension and thereby help the category manager in managing the category as per the desired profitability target or category management goals. Talking about dimensions on which to analyze the sales trends brings us to the concept of better understanding of consumer needs. This becomes of foremost importance in order to reach at the objective of profitable management of categories. No one can deny that for any business to succeed in to-day’s fierce competitive environment correct understanding of consumer choices and buying trends is of utmost importance see Figure9.1. Figure 9.1: Relationship of Consumer Needs and Buying Trends with Category Management 9.4 RELATIONSHIP OF DIFFERENT GOALS WITH THE CATEGORY MANAGEMENT PROCESS As explained in Figure9-2 the process of Category Management or its goals are influenced by Business Goals, Financial Goals, and Consumer Needs in that order which in turn have influence on Profitability Goals and Consumer Satisfaction.