The supermarket market is constantly evolving. And one of the main causes of this phenomenon is the changing expectations of consumers, who are influenced by structural changes in consumption and new trends! Faced with this challenge, manufacturers who distribute to supermarkets have to find ways of anticipating, influencing and responding to this ever-changing demand.
In this article, Sidely reviews the fundamentals of category management, a tactical approach that enables companies to improve their retail performance by adapting their category strategy.
We begin by reviewing the definition of category management. We'll then explore the role of the catman and the main techniques at his disposal. Finally, we'll look at key data and how to analyze the results of your strategy.
In short, if your brand hasn't yet adopted category management, chances are this mini guide will stimulate your intellect!
Category management is a strategy for boosting sales of a product category, as well as those of the brand, in the retail sector.
Product categories are then managed as separate business units.
Category management involves collaboration between supplier and retailer. This method relies on the analysis of sales data and consumer behavior to optimize product assortment, pricing, merchandising and promotions. Category management, efficient consumer response (ECR) and trade marketing work in synergy to provide a global approach to improving operational efficiency.
To understand why mass-market brands have adopted category management, we need to understand why it came into being in the first place.
Let's look at the historical relationship between brands and retailers.
Before the advent of supermarkets, brands had direct access to the market, but this often meant working on a much more local scale.
Since then, mass retailing has developed, reversing the balance of power in favor of the distributors. Stores have grouped together into chains, in order to pool purchases, which has drastically increased their bargaining power vis-à-vis brands.
These power plays have contributed to the complexity of exchanges between brands and distributors, particularly during annual commercial negotiations. Without active collaboration, their respective actions - supplier and distributor - become less effective.
What's more, brands' need for data has strengthened retailers' power, as they own the actual sales data (sell-out). As a result, intuitive decision-making without data analysis leads many brands to manage their business reactively rather than proactively.
Faced with this accumulation of constraints, retail marketing - Americans, as is often the case... - has come up with a formidable concept: category management!
The emergence of category management has enabled brands to face up to these changes and redress the balance of power. Category management is above all a more strategic and collaborative approach to retail marketing. Retailers stand to gain from this strategy too.
Now we can get down to business!
The role of a category manager is to optimize the development of a product category, with the aim of ensuring the best return for the brand he represents, and increasing customer satisfaction.
The category manager analyzes the data obtained from monitoring sales trends, to organize marketing and sales action plans.
Its missions are :
Be careful not to confuse the category manager with the product manager: the product manager focuses specifically on the development and management of a product, whereas the category manager manages an entire category of products.
Based on consumer behavior and category strategy, you'll be able to implement merchandising actions in terms of shelf presentation, assortment, promotions and pricing.
This will enable you to implement your category strategy in line with your marketing and sales objectives.
TURF analysis is a statistical method used to optimize product assortments, with the aim of defining the best item combinations and thus maximizing sales.
Total Unduplicated Reach (TUR ) refers to the total unduplicated reach of a set of products, services or advertising messages. The aim is to attract the greatest possible number of customers.
Frequency (F) refers to the number of times a consumer or market segment is exposed to the set of offers. The aim is to maximize this frequency while reaching as many unique individuals as possible.
TURF analysis enables the category manager to measure the total number of unique people reached by at least one product in a given category, and then to determine the frequency with which this set of products is purchased by customers, without duplication.
This method helps optimize the overall performance of a category by responding to customer needs and preferences. In particular, it is used to answer questions such as :
Cross-selling involves encouraging customers to spend more in the same or related categories.
For example, by placing potato chips next to packs of beer, consumers will tend to buy them at the same time, even though these products are not originally in the same category.
On the same principle, you can create bundles or grouped offers, including complementary products but from different categories. This can stimulate sales on less profitable products, and thus improve overall profitability.
Product price management helps you optimize category profitability and meet your customers' expectations.
First, you need to calculate production and distribution costs to establish the margin you can apply while remaining competitive.
In addition, it is useful to use historical data to assess the impact of price variations on demand. The price-volume effect is a relevant method for assessing the contribution of price and sales volume trends to your sales growth.
Then, studying the prices on competing products helps you find a competitive price positioning. The classic technique of psychological pricing continues to have an impact on consumers' minds. For example, faced with a product labelled at €9.99, the brain will always tend to memorize the first digits on the left rather than those on the right. As a result, the customer will have the impression of buying the product at €9 and not €10.
To be successful, you need to adopt a pricing strategy based on seasons or special events. You can adjust your prices to maximize profitability when demand is high. In the opposite situation, the use of promotions stimulates sales and reduces excess inventory.
Various types of data analysis tools can help you anticipate future consumer trends, so you can adapt your product categories to them:
These are generic or specific tools, but they all have one persistent drawback: in supermarkets, it's often the central purchasing agencies or stores that place the orders for you, not the sales outlets themselves. As a result, it's difficult for you to obtain figures by sales outlet and by product (the famous sell-out).
There are two ways to remedy this situation:
To anticipate trends, we need to analyze the market, in order to understand all the factors that will influence the performance of a product category.
To determine demand, you need to look at category sales trends, seasonal variations and product life cycles.
Studying market trends will enable you to understand which ones will affect a given product category.
To effectively support the sale of your products, you'll also need to choose the right actions for the stores in which they are sold.
They are all part of an approach adapted to their own environment: the listing and assortment policy varies from one brand to another, as do your prices and merchandising. What's more, some of your competitors won't necessarily choose the same distribution strategy as you: depending on the brand and/or point of sale, their visibility may change (just like yours).
Depending on your distribution strategy, the category manager will not use the same techniques.
Understanding your customer base will enable you to develop a coherent and effective strategy. This analysis helps define the scope of the category.
Your category manager will determine who your typical consumers are in the desired category and study their behaviour at various levels:
Customer analysis involves the creation of a consumer decision tree (CDT), which is used to identify the consumer journey, i.e. the choices he or she will go through when buying a product in this category.
By observing the reactions of your competitors' target customers, your category manager will be able to identify best practices and improve what can be improved. This competitive intelligence involves monitoring the tactics used by your competitors: loyalty programs, promotions, advertising campaigns, communication via social networks, and so on. Next, you can organize questionnaires with their customers to understand their customer experience.
In supermarkets, it's vital to keep your finger on the pulse of market trends!
That's why brands keep their assortments up to date with market trends. But this sometimes involves complex trade-offs.
The analyses mentioned above enable good catman to be constantly anticipating, rather than reacting. Even so, it's impossible to predict the future, and the market sometimes leads him to miss opportunities that were not foreseeable.
It's essential to react quickly to any new emerging or growing demand for a given product, in order to take advantage of the opportunity. And, of course, be sure of the product's potential in terms of sales and profit margins.
You can expand your category by adding a product, making your offer more attractive to your customers.
A product's life cycle comprises 4 stages:
When sales and profits fall, the product is in decline.
This drop generally follows changes in consumer expectations or the appearance of new products.
It is always possible to think about restoring the potential of the product concerned, by making improvements or adjusting its price.
If relaunching this product is not possible, it's time to remove it!
In order to measure the effectiveness of category management, it is necessary to monitor KPIs:
Thanks to this monitoring of key performance indicators, you can make ongoing adjustments to your category management strategy.
Yes, category management is a continuous improvement process!
As we have seen throughout this article, this category marketing strategy enables us to anticipate, influence and better respond to changes in consumer behavior. It relies heavily on data analysis, and requires the involvement of your supermarket partners.
So, by adopting the techniques presented in this guide and remaining vigilant to market changes, you'll be able to develop your market share in the ultra-competitive mass retail sector, while improving collaboration with your distributors.
