From category management to shopper management

The classic category' management approach starts with the definition of the category'. Categories are products that meet similar needs, and that are interrelated or substitutable. They should also be able to be placed and activated together at the point of purchase.¹⁶

Within modem and or ganized retail, category management approaches are used to collaborate to optimize the activation from the perspective of the shopper and in line with retailer and manufacturer strategies. The challenge of brand owners in modem sales channels is that they do not control the activation, and so this needs to be based on the agreement with the retailer. Retailers engaging in category management approaches normally appoint a category captain, often one of the leading manufacturers, to optimize the presentation of the category' at the retailer. The category' captain needs to be objective in terms of brands, with the assumption that growing the category in volume and/or value will benefit all brands, as well as the retailer. There are inherently several conflicts to the approach. The retailer’s focus is the shopper and the value of the shopping basket, whereas the manufacturer’s focus is the consumer and the brand. There is also a risk that category management with one of the brand leaders as category captain will cement the status quo and complicate the situation for smaller brands.

Category management was introduced in the 1980s as a collaboration between retailers and manufacturers. Organizations within the ECR framework were founded to help in the methodological development to enhance the collaboration between retailers and manufacturers.¹⁷

The concept of category management emerged out of the total quality movement, first developed in Japan and then adopted by companies such as Hewlett Packard and P&G in the 1980s. As the output of companies is compiled of multiple processes, and even if every process is optimized, the final total output can be sub-optimum.¹⁸

In the early 1990s, the consumer-packed goods (CPG) industry' fomred the Efficient Consumer Response Committee to address the many' collaborative problems and conflicts between retailers and manufacturers. The committee, composed of major stakeholders in manufacturing, retailing and distribution, agreed on a common denominator for industry

Figure 5.16 Coca-Cola merchandising score system

Example of Coca Cola RED (right execution daily) scoring sheet in India. Dimensions considered are coolers, the availability of the right portfolio and the activation of the store. A sample of stores are normally evaluated with a maximum of 100 points to be distributed. In this case, 40 for coolers, 25 for availability, and 35 for activation, distributed differently by different channels. Note: E&D: Eating and Drinking channel; Conv: Convenience channel: D: Diamond outlets; G: Gold outlets; S: Silver outlets; RGB: Return Glass Bottle; CSD: Carbonated Soft Drinks; TP: Tetra Pack; GSB: Glow Sign Board; DPS board: Dealer Printed Sign board.

Source: Author collaboration: the category. Both shoppers and retailers focused on categories rather than brands when planning their purchase or offering. As a result, the category' became the dimension around which the CPG ecosystem would operate.¹⁹

Category management was implemented with a rigorous eight-step process with specific inputs, outputs and metrics at each step. Although the information and data used in category management have increased dramatically and the software tools used to manipulate the data have improved in the last two decades, the basic steps have mainly stayed the same. The category' management approach enjoys a high level of adoption by the industry and the success is due to five fundamental changes in the way companies collaborate and analyze the market:

• 1. Changes in the culture of collaboration between retailers and manufacturers: A process does not simply change years of adversarial relationships between business partners that have been rewarded for taking advantage of the person at the other side of the table. Both retailers and manufacturers have had to start relying on each other and agree on objective data to be used in analyzing the situation. Category management has succeeded by moving the conversation between retailer and manufacturer from arguing about who receives the lion’s share of a fixed amount to how to enlarge the amount to share. Category management suggests that both business partners can benefit by meeting the needs of shoppers. The most important achievement of category management has been to exchange relevant data and to build trust between partners.
• 2. Focus on the shopper: Focusing the collaboration on the common shopper and how to satisfy his or her needs has directed the discussion toward a common goal, away from the focus on conflicting objectives of the retailer and the manufacturer.
• 3. Development of new skills: Category management is data rich and analysis focused. With category management the sales and buying process has moved from focusing on pure negotiation skills to include analytical skills.
• 4. Creation of a fact-based environment: The availability of new data and analytical tools has changed the discussion. With objective data, negotiations can center around facts rather than being based on anecdotal assumptions. The credibility of category management lies in its fact-based approach, which has led to its acceptance within the CPG ecosystem.
• 5. Increased profitability through a reduction in choice-related costs: Category' management has increased margins, especially, but not exclusively, the retailers’ margins by reducing the proliferation of choice within categories. The benefits of reducing choice has been described in an ECR paper on Efficient Item Assortment that introduced the concept of “transferable demand” of SKUs with similar attributes. The report showed the relatively low risk of eliminating SKUs with similar attributes to other SKUs.²⁰ Early studies conducted by ECR organizations showed that 20 percent of SKUs could be eliminated, while still increasing sales of the categoiy, primarily by eliminating low-performing brands and giving space to better-performing brands. Reducing the range increases the cost efficiency at every step along the supply chain of manufacturers and retailers.²¹ In addition, a reduced range reduces the shelf space for many categories, allowing retailers to introduce new categories and new products and sendees within the restrictions of the store’s selling space.

The adoption of ECR practices has been especially successfol in the area of the supply chain, where there have been fewer conflicts of interest compared to the commercial area of category management.²²

The optimal presentation of the optimal category portfolio includes aspects such as location, presentation and layout of shelves and different activations, e.g. promotions. In the presentation and layout, the portfolio in terms of brands, prodircts and services is defined, as well as their location, their space allocation and price levels by SKU. The basis is the decision tree, which is the schematic representation of the shopper’s decision process. The idea is that the presentation of brands, products and services should represent the decision process of the shopper to facilitate choice and decision making. The decision tree is then

Figure 5.17 The eight steps of category management The classic category management steps.

Source: ECR Europe & The Partnering Group, 1998

Figure 5.18 The JAG process Framework of the JAG process.

Source: ECR, 2009

detailed into a planogram that is the detailed map of the presentation of the category on the shelf.

There are initiatives to make the category management process more strategic through an even better alignment between retailer and manufacturer to increase sales and profitability levels. In one such initiative, jointly agreed growth (JAG), the manufacturer and the retailer agree on common goals with clear action programs supported by the necessary resources to ensure implementation in line with the commitment.

In contrast to category' management the starting point in shopper marketing is the consumption need state. Tire consumption need state not only defines direct interchangeability between products, but focuses on the needs being satisfied. It can therefore include different categories, dependent on the consumption needs, motivations and occasions. Understanding the consumption need states gives valuable insights into the motivations, as well as the

Figure 5.19 Decision tree based on categories vs. based on consumption need states

Example of decision tree for diaper purchase in Scandinavia based on category management and based on shopper management.

Source: Author

complementary categories and services defining the same consumption need states. At the same time it provides the basis for the activation of brands, products and services within each specific consumption need state. In a decision tree driven by categoiy management, the category is normally divided into product-driven sub-categories, and then into the different brands. From a shopper-based view, this would only make sense if the brand perception equals the solution. In a shopper-based decision tree, the decision points are the usage, the occasion, and then which brands, products and services are part of the optimum solution to the shopper.

For a correct representation of the needs and purchase process of shoppers the classical category' management approach has some disadvantages, and a shopper-oriented approach better represents the real shopper behavior.²³

The classic category' management does not explicitly take into consideration the strategy of the retailer or even the different strategies by format. The role of a category' and the role of the retailer differ by type of retailer, format and even type of point of purchase. In addition, the shopper journey and the coherency of activation fr om before to the point of purchase is not considered. The success of category management approaches is dependent on the agreement and commitment between retailers and manufacturers, as proposed in the JAG approach.²⁴ To build a successful approach focused on the shopper the classical category management model should be complemented to incorporate the shopper, the retailer and a clear commitment between retailer and manufacturer.

Air example is the presentation of consumption need states of H&M in their stores, as well as in their online presence. The advantage for manufacturers with then own retail outlets is obviously foil control of the presentation and activation.

The activation of the point of purchase, especially in the brick-and-mortar environment, includes more dimensions than just the presentation in terms of location, shelf layout, equipment, prices and promotions. Other dimensions include music, olfactory factors and

Figure 5.20 Need for shopper-oriented category management

Percentage of retailers and manufacturers that see a need for more shopper-centric category management.

Source: Author, based on Deloitte & Winston Weber and Associates, 2015

the way in which the categoiies are arranged, all of which influence the size and structure of the shopping basket.²⁵ Poorly presented brands, products and services do not only have a negative impact on shopper conversion, but on the brand image as well.²⁶