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The use of category management practices to

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the fast-moving-consumer-goods industry
Article in Journal of Business & Industrial Marketing December 2004
DOI: 10.1108/08858620410564391

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An executive summary for managers and

executives can be found at the end of this
article.

The use of category

management practices
to obtain a sustainable
competitive advantage
in the fast-movingconsumer-goods
industry

Introduction

Kyle Dupre and

Thomas W. Gruen
The authors
Kyle Dupre is Corporate Wholesale HBC Inventory Analyst at
Supervalu, Chanhassen, Minnesota, USA.
Thomas W. Gruen is Assistant Professor of Marketing at the
University of Colorado, Colorado Springs, Colorado, USA.

Keywords
Supply chain management, Competitive advantage,
Fast moving consumer goods

Abstract
Despite massive efforts of suppliers and retailers in the fastmoving-consumer-goods (FMCG) channel to adopt the efficient
consumer response (ECR) practices, many of the expected
benefits have not been realized. This study examines the history
and implementation practices of ECR in the USA and in Germany
and presents conceptual models that compare the likely
outcomes when ECR-based category management practices are
initiated either by the supplier or by the retailer channel partner.
Combining the knowledge gained from a series of interviews
with industry experts with their own ECR experiences, it is
shown how a strategic competitive advantage can be realized
through the combination of both supplier and retailer views and
expertise in category management practices. The article
concludes with an examination of barriers to implementation of
category management plans and suggests ways to overcome
these barriers.

Electronic access
The Emerald Research Register for this journal is
available at
www.emeraldinsight.com/researchregister
The current issue and full text archive of this journal is
available at
www.emeraldinsight.com/0885-8624.htm

Journal of Business & Industrial Marketing

Volume 19 Number 7 2004 pp. 444-459
q Emerald Group Publishing Limited ISSN 0885-8624
DOI 10.1108/08858620410564391

Over the past several years, partnering between

market channel entities has become both an
important business practice, and it has been the
subject of considerable attention of academic
research (Donaldson and OToole, 2000; Gadde
and Snehota, 2000; Lambert and Cooper, 2000).
For example, we have seen increased emphasis on
supply chain management both in industry as well
as in journals (Hult et al., 2002; Kotzab, 1999).
One high profile industry that has undertaken
partnering as a critical strategy throughout its
supply chain is fast moving consumer goods
(FMCG), much of which is ultimately sold
through traditional grocery retailing. To guide
their partnering relationships, channel members in
the FMCG industry have adopted industry-wide
processes and standards under the umbrella name
efficient consumer response (ECR). ECR was
designed to address massive inefficiencies that had
developed and accumulated in the channel over
several years (Kurt Salmon Associates, Inc.,
1993). While ECR has shown promise and
practices have been adopted worldwide, a large
portion of the anticipated promise expected from
ECR has not been realized (Kotzab, 1999;
Mathews, 1997; Tosh, 1998).
For background, ECR has been defined as a
business process and strategy where channel
members form mutually beneficial relationships to
bring better value to the end customer. ECR
objectives are accomplished through both supply
side and demand side strategies. The underlying
objective of the supply side is to get the product
through the supply chain and to the end user
quicker and cheaper. Alternatively, demand side
strategies utilize category management to
determine which products should and should end
up on the retailers shelves, regardless of how fast
and smoothly the supply chain operates (von der
Heydt, 1999). Both the supply side and the
demand side contribute to the underlying goal of
an ECR relationship, which is to provide a
sustainable competitive advantage for the channel
partners. This is obtained through:
.
decreased costs through supply side strategies;
and
.
decreased costs and increased revenues
through demand side strategies (primarily
category management).
Thus, all firms in the FMCG industry must
concentrate on both strategies (Holzkampfer,
1999).

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Volume 19 Number 7 2004 444-459

These ECR strategies and practices require

channel members to cooperate in order to reduce
and eliminate inefficiencies throughout the
FMCG supply chain. And the cooperation has a
motivating reason: the payoff is potentially huge.
Generated by traditional adversarial channel
relationships, the inefficient practices identified by
ECR task groups have been estimated to add $3045 billion annually in North America and Europe
to the final landed cost of the retailer (ECREurope, 1997; Kurt Salmon Associates, Inc.,
1993). This aggregate amount represented
approximately 6 percent of the total cost to the
consumer. By addressing these huge inefficiencies,
ECR has gained international importance as is
evident in the slew of published consulting reports,
press releases, academic research, and industry
conferences (for example, between 2,500-3,500
delegates from the FMCG industry attend the
annual ECR-Europe conferences)[1].
Retailers also have a strong motivation to
cooperate in ECR programs. From the retailers
perspective, ECR was developed as a way for the
traditional grocery retailers to defend against
aggressive new forms of retail competition in the
FMCG industry. For these traditional retailers, the
massive inefficiencies that had accumulated in the
FMCG channel led to higher prices, assortments
that did not address the needs of shoppers, out-ofstocks, and many undesired new products that
took space and retail management attention. This
situation resulted in declining store loyalty among
shoppers and an erosion of sales volume and
margins to competing retail formats that attacked
traditional grocery retailers on a category-bycategory basis (Blattberg, 1995).

consumer behavior. Category management theory

posits that retails sales and profits will be maximized
by an optimal mix of brands, SKUs, and pricing that
is determined from the perspective of the consumer
and is based on historical sales data. This mix is
based on a systematic category review, and it results
in a category that is differentiated from competitors
categories from the eyes of the consumer
(Kalmbach, 1999). Category reviews typically result
in the elimination of several duplicate and poorly
performing SKUs, additional of a small number of
category enhancing SKUs, and adjustments in
facings, pricing, promotions, and organization of the
category (for detailed information on the category
review process, see Blattberg, 1995; Broniarczyk
et al., 1998; Gruen, 1998).

A view of the demand side: category

management
While the supply chain practices in ECR have a
direct link to known practices outside the FMCG
industry, the process and practices of the demand
side, notably category management are less well
known outside the FMCG industry. Category
management begins with a strategic shift of the focus
of management attention from the manufacturers
brands to the retailers categories. A category is
defined as a distinct manageable group of products
that consumers perceive to be related and/or
substitutable in meeting a consumer need
(Blattberg, 1995), and a typical US grocer will have
about 200 categories. Thus, category management
is seen as a joint process of retailers and suppliers to
manage categories as strategic business units, in
order to produce enhanced business results by
focusing on delivering increased consumer value.
Category plans are jointly developed based on
category goals, the competitive environment, and

Impact of ECR and category management

In general, individual reports from ECR supply
chain and category management efforts have
tended to be positive. On the supply side, supply
chain partners have been able to pick low hanging
fruit by eliminating glaring inefficiencies through
supply chain management practices (Alvarado and
Kotzab, 2001; Becker, 1997). From the demand
side, anecdotal reports of the results of category
management applications that have been reported
in industry trade publications and at ECR
conferences showed enhanced performance at
retail following category reviews (Gruen, 1998;
Hausruckinger and Lintner, 1999). As a typical
example, in Germany, retailer used ECR practices
to address the cleaning and household supplies
category and was able to reduce SKUs (stock
keeping units) by 25 percent, cut costs by 10
percent, and increase sales by 10 percent.
Academic journals have reported similar findings
have been reported in the US and throughout
Europe (Broniarczyk et al., 1998; Gruen, 2002).
However, while there have been noticeable
gains made from both supply side and demand side
ECR efforts, there is general agreement among
industry experts and academic scholars that ECR
has yet to deliver on a great portion of its predicted
promises (Kotzab, 1999; Mathews, 1997; Tosh,
1998). For example, Kotzab (1999) specifically
examined the supply side, providing perspective
for enhancing what he sees as only marginal gains
through current supply chain ECR efforts.
Alternatively, on the demand side, Mathews
(1997) suggests that:
Category management has become the Holy Grail
of efficient consumer response (ECR) universally
searched for; constantly discussed; a source of
constant inspiration holding out the promise of
certain salvation; and, sadly, rarely if ever seen.

Combining both demand and supply sides, these

unmet promises come in the form of outcomes,

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Volume 19 Number 7 2004 444-459

such as missed opportunities to lower cost,

increase margins, and/or increase customer
satisfaction. These can also be in the form of
processes such as the inability to shift to a win-win
partnering relationship, lack of sharing of detailed
and timely information, and/or lack of a developed
performance and reward system (Kahn and
McAlister, 1997).
Focusing on the demand side, Gruen and Shah
(2000) identified and examined the natural
barriers inherent in category management. Those
include the complementary agency problem of the
retailers (protecting against suppliers
opportunism), and the transaction cost problem of
the suppliers (creating plans for retailers that never
get implemented). While their study provided
additional rationale for understanding why the
promised ECR results remain elusive, it also
demonstrated the need for more understanding of
the process of the ways that ECR relationships
develop. This understanding is necessary in order
to move towards a solution of the essential
problem and thus realize a greater portion of the
ECR promises. From this basis, the objective of
this study is to extend the work of Gruen and Shah
(2000) by presenting our findings that examine
and provide one key explanation why ECR results
have not been realized. We use these findings to
develop and present a strategic perspective that
serves as a guide to the implementation of ECR
initiatives. To develop the models, we specifically
examine the development of ECR practices in
Germany as a general case study. Drawing on this
research, as well as from our first-hand knowledge
of ECR practices in the US, we present a strategic
perspective that explains how combining the
supply chain and category management practices
in the FMCG channel can deliver a greater share
of the results expected from ECR initiatives. Such
findings can not only provide assistance to
practitioners in the FMCG industry, but also
provide insight for academic researchers and
industry practitioners examining other supplychain partnering relationships.

traditional grocery retailers are defending their

markets in the face of strong competitors that
include category killers, club stores, and other
retail forms that have systematically attacked their
customer base (Blattberg, 1995). Thus, the
grocery retailers can be classified as defenders.
Retailers that primarily embrace ECR supply side
initiatives would be seen as low-cost defenders
and those primarily embracing the ECR demand
side initiatives as differentiated defenders.
Departing somewhat from the firm-centric
view of the strategic typology, it is important to
remember that a cost leadership strategy in ECR is
not solely the job of the retailer, but rather is
derived from cost savings obtained by cooperation
throughout the supply chain. Moreover, industry
experts agree that most of the ECR supply side
efforts are driven by the suppliers in the channel
who are hoping to enhance retailer loyalty through
their efforts (Gruen, 2002). Thus, cost leadership
can be considered being a supply-chain driven
approach that focuses on supply side ECR
strategies designed to lower the overall costs of
moving products through the FMCG channel.
Similarly, strategic advantage through
differentiation that is achieved through ECR
demand side strategies (primarily category
management) can be initiated by the supplier and
then driven down the channel to retailers, or they
can be initiated by the retailer and driven up the
channel to the supplier (Gruen and Shah, 2000).
Based on this discussion, what we term a
complete ECR approach requires a combined
form of strategic response, one that incorporates
many elements of the low-cost defender position
and elements of the differentiated defender
position. Thus, as a general guiding proposition to
our research we suggest that when the focus of
ECR is only on one strategy (demand side or
supply side), only a portion of the promised
benefits can be obtained. ECR practice must not
be limited to one strategy, but rather
differentiation with cost control must both be
included to obtain the full benefits of ECR and
lead to a sustainable competitive advantage.
However, the general experience reported by
trade journals and academic publications suggests
that most ECR initiatives have not addressed the
both strategic approaches. Many suppliers and
retailers in Germany, across Europe, and in the US
initially adopted ECR practices by applying supply
side initiatives that created efficiencies through
streamlining and simplifying supply chains
(Becker, 1997; Kotzab, 1999). The supply side
delivered quick benefits in the form of lower
operating costs that were easy to measure. This
focus required only a short-term partnership
commitment from the suppliers and retailers,

Linking the category management process to

overall ECR strategy
The objective of the domain of marketing strategy
is to find means to compete and obtain a
sustainable competitive advantage. In this domain,
Walker and Ruekert (1987) proposed a hybrid
typology that includes:
.
prospectors;
.
differentiated defenders; and
.
low-cost defenders.
By definition defenders seek to seal off a portion
of their total market from competitors (Slater and
Olson, 2000). In the case of the FMCG industry,

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Volume 19 Number 7 2004 444-459

while it also offered the opportunity to build trust

between these parties. However, retailers that
focus solely on the ECR supply side initiatives
sooner or later realize that the competitive
advantages from the supply side are short-lived,
since competitors can match lower costs through
adopting similar ECR supply side standards. For
example, a manufacturer and/or wholesaler/
distributor works with several retailers
simultaneously. Therefore, cost efficiencies gained
in working with one retailer can be often
transferred to another retailer.
Thus, the competitive environment of the
traditional grocery industry requires a retailer to
not only control its costs from the supply chain,
but also to present a differentiated offering that
matches the needs of its shoppers. The question
remains, how can firms successfully implement
both supply side and demand side initiatives? In
the following sections we describe the
methodology we used to examine this question,
and then report our findings.

third approach was designed to collect primary

data on the particular questions of interest. The
specific method employed was a qualitative fieldbased inquiry (Drumwright, 1994; Fielding and
Fielding, 1986). This was done through a series of
in-depth, interviews with various category
management professionals from three specific
groups:
(1) Supply-side companies (manufacturers).
(2) Demand-side companies (retailers).
(3) Third-party experts.

Research methodology
In order to examine the development of ECR and
the adoption of category management practices,
we used the following avenues of inquiry. The
overall exploratory nature of the study based on
the research objectives required that we use
multiple sources and methods. The first involved a
review of the available literature. To accomplish
this, we read, analyzed, and summarized the
available published information on ECR and
category management in Europe (with a special
focus on Germany) and in the US. Whenever
possible, sources were obtained in English. The
sources that were only available in German were
read and summarized by one of the authors, whose
second language is German. The second method
employed was through participant observation,
a method where the researchers immerse
themselves in the research setting they are
studying. Such a method is particularly well-suited
for studying naturally occurring phenomena such
as the development and adoption of business
practices (Judd et al., 1991). One form of
observation was through participation by the
authors in the ECR community from 1999
through 2001. This included attending the ECRUSA Conferences, ECR-Europe Conferences, an
ECR-Germany Demand Side meeting (which was
in German), ongoing participation on the ECR
Global Scorecard development team, and ongoing
meetings with practitioners of category
management. While the first and second methods
provided a general grounding for the study, the

The first interview group consisted of

representatives from three major German retailers.
Among those interviewed from this group, one
retailer contact serves as co-chairman of the ECREurope demand side steering committee and
another retailer contact serves as co-chairman of
the ECR-Germany demand side steering
committee. The second interview group included
representatives from five major international
suppliers. All interviewed in this group were
directors of category management, and one
contact serves as co-chairman of ECR-Germany
demand side steering committee. The third group
consisted of a variety of third party experts, which
includes consultants, third party information
providers, and trade association directors. One
interview contact serves on ECR-USA demand
side steering committee, one contact serves on
ECR-Europe steering committee, and one contact
is the ECR-Germany chairman. Those selected for
interviews had been identified through either or
both of the first two methods described above, or a
co-chairman of the ECR-Europe organization
recommended them. These interviews were
conducted over a six-month period in Germany by
one of the authors. All who were interviewed had
extensive involvement and broad experience in
category management, and roughly half of those
interviewed extended their own company
experience with service on the steering committees
of ECR-USA, ECR-Europe and/or ECRGermany.
Each of these semi-structured interviews
followed the same protocol (see list below), and
generally lasted about one hour. In total, we
conducted 16 interviews, all in English. The
interviews were tape recorded, then transcribed
and verified for accuracy by one of the authors.
Following a typical approach to developing
grounded theory (Strauss, 1987), the authors
created theoretical memos of each interview,
followed by theoretical sorting. Specifically, both
of the authors summarized the main arguments
that each respondent made to every question, and
the authors classified each argument. All the
summary classifications were tallied, and the
authors concentrated on the classifications that

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Volume 19 Number 7 2004 444-459

appeared in more than five of the interviews. The

most consistent responses to each question are
presented in the list below. Following techniques
commonly used in marketing research (for
examples see Drumwright, 1994; Fournier, 1998),
to illustrate the findings, the authors then chose
direct quotes from the interviews based on the
respondents whose answer best typified the
findings from each questions summary. In order
to properly cite information from those
interviewed while protecting their confidentiality,
any corporate names used in the interviews were
masked, and we randomly assigned a number to
each contact. The information gained from all
three sources guided the development of our
models.

Emphasis of ECR in Germany

What do you think have been the past focus of ECR,
the current focus, and the future ECR focus? (prompts:
demand side or supply side).
.
Started on the supply side, starting to move to
the demand side.

Strategic advantage(s) of category

management
What are some strategic advantages that category
management makes possible? How does category
management make these advantages possible? To what
extent have the advantages been realized or not
realized, and what are the barriers you see towards this
realization?
.
Resource allocation category management
tools enable a retailer to micro manage its
(shelf space allocation to each SKU) and
macro manage its space (store space allocated
to each category).
.
Strong customer focus, better understanding
of target customer, leads to an assortment and
promotion focused on the customer.
.
Increased customer satisfaction.
.
Need to do a series of category plans to realize
the strategic advantages of category
management.
.
Need to focus on the retailers individual
format and strategy.
.
Those retailers really practicing category
management, not just SKU adjustment,
realize the full category management benefits.

What are the two or three major factors that you believe
led to the current ECR focus of retailers and suppliers in
Germany, and when and how did they contribute to the
situation we see today?
.
Realize the results/cost cutting much easier
and faster.
.
Strong focus on price negotiation, which leads
to a very adversary relationship.

How has category management enabled practitioners to

differentiate their offer from competitors? If category
management provides a competitive advantage, is this
sustainable?
.
Different retailers have different destination
categories based on their target customers,
strategy, and format, so two competing
retailers will not focus on the same categories.

Results of ECR focus

What have been some of the results of firms that have
an equal focus on demand side and supply side
strategies? Do you see better results from firms that have
emphasized demand side strategies over supply side
strategies, equal focus, or vice-versa?
.
Cost cutting only offered short-term
competitive advantage.
.
Need to complement cost cutting with
differentiation offered by demand side.
How has successful category management plan been
able to increase the effectiveness of supply side
implementation?
.
SKU rationalization.
From your observations, what have been some
consequences (performance, confidence in ECR,
competitive position) for companies that give
insufficient emphasis to category management?
.
Not strong focus on category management,
you will start losing your customer base,
resulting in lower market share.
.
Strong focus on category management will
give you stronger growth than market average.

How can category management increase customer

loyalty? What tools can be used to increase customer
loyalty?
.
Right price, assortment, based on target
customer.
.
Increased customer satisfaction.
.
Stronger customer focus and customer
segmentation.
Barriers to category management emphasis
(in Germany)
What have been some internal and external barriers
from the trade for category management
implementation? Are the barriers cultural, or is it the
channel structure that places the greatest barriers?
.
Strong focus on price and negotiation.
.
Retailer internal structure category
management decisions made by marketing,
implementation done by operations, need to
link the two functions.
.
Retailers do not share data.
.
Experience buyers resist change, lack of
commitment to retraining buyers on category
management principles and procedures.
.
Lack of top management support.

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Volume 19 Number 7 2004 444-459

How can these barriers be addressed and overcome?

.
Results/success with the first category plans.
.
Top management support for category
management to change internal structure and
train staff.
.
Performance, measurement, and
accountability.

develop, since the inability to move from supply

chain to demand side initiatives seems to be the
stumbling block for obtaining full ECR benefits. As
noted earlier, implementation of the supply side
ECR initiatives is generally the starting point in the
FMCG industry. Therefore our research specifically
examined on the way that demand side initiatives are
created (once the supply side has been addressed) in
order to overcome this barrier. As a general preview
of our findings, on the demand side, we found that
the category management practices most typically
begin when a supplier approaches a retailer to
conduct a category review of the suppliers most
important categories. This review normally results in
a small win and provides the retailer with a positive
experience resulting from implementation of
category management practices. The positive impact
can come in the form of one or more of the
following:
.
increased sales;
.
lower costs;
.
fewer out of stocks; and
.
increased customer satisfaction.

Category captain
To what degree does one supplier play the role of
category captain in category management relationships
in Germany? How do retailers perceive their
relationship with suppliers, and is there a fundamental
level of trust that allows effective functioning of a
category captain?
.
Understanding of role captain can be
misconstrued by suppliers to mean in charge,
which may cause supplier to act in its best
interest instead of the retailers best interest.
.
Multiple captains, usually one captain per
each sub category (e.g. one supplier captain
for hair spray and one captain for hair
colorant).
.
Switch captains every two to three years.
What system of check and balance are in place to assure
that the category captain acts objectively while
planning the category plan? Do the retailers have a
basic sense of trust in the category management
system, or do they generally approach it with suspicion?
.
Joint meeting to discuss retailers strategy and
category performance objectives.
.
Retailers expect growth greater than market
average.
.
If captain is not objective, that supplier will
not deliver the promised results and will be
punished by the retailer.
.
Those retailers that approach a supplier to
engage in a category management relationship
have much more trust in category
management system than the retailers
approached by the supplier.
How can a category captain communicate their
objectiveness in their category plan to the retailer? Are
the retailers able to see the need for a category captain?
To what degree are formal scorecards developed and
utilized in the relationships?
.
Advise retailers on your competitors and your
brands, treat your competitors fairly.
.
Delist your own week brands.
.
Small steps, such as SKU adjustment, to build
trust and results over time.

It is only after this initial positive experience that

the retailer will then approach a supplier to
conduct a category review on the categories most
important to the retailer. The models that follow
explore the issues related to both supplier initiated
and retailer initiated approaches, and they examine
how both approaches eventually contribute to a
sustainable competitive advantage when combined
with the supply side efficiencies.

Supplier-initiated category management

We found that there is a gap in category
management capabilities between suppliers and
retailers. Since several international suppliers had
developed category management expertise much
earlier in other countries (predominantly in the US
and/or UK), they readily transferred this know-how
internally. Thus, not surprisingly, category
management projects were normally initiated by
suppliers who would (based on their experience and
self-interest) focus the retailer on the particular
categories that were most important to the suppliers
business (see Figure 1). Moreover, our research in
Germany found that drug chains and hypermarkets
tended to be more open to category management,
while most traditional grocery retailers were still
focused on acquisition price instead of the category
management principles, as is illustrated in the
following comment from our interviews:

Supplier- vs retailer-initiated category

management
The central issue that we explored in the interviews
was the way that category management relationships

449

The big problem in Germany is that suppliers

(especially international suppliers) are very open
for category management and have a category
management offer in each category, but most
retailers are not open to category management
(supplier 2).

The use of category management practices

Journal of Business & Industrial Marketing

Kyle Dupre and Thomas W. Gruen

Volume 19 Number 7 2004 444-459

The outcomes of this situation are described below

and illustrated in Figure 1.

All the companies that work with category

management have full realization of the benefits
offered by category management. The ones not
really working with category management really
just adjust their assortment, and do not realize
these three benefits. They dont understand their
customer better, they do not allocate their
resources better, and they dont get better knowhow (third party expert 2).

Outcome 1: supply side-driven cost leadership on

selected category
When a supplier initiates the category
management relationship with a retailer, the
underlying objectives of the partnership are to
improve the margins in high turnover categories by
decreasing the costs and creating a more
transparent offer to the target customers in these
categories. Eliminating unwanted SKUs and
ineffective promotions increases the cost
effectiveness and efficiencies on the supply side.
Category reviews in supplier initiated situations
tends to improve the performance of existing
categories, but does not offer other enhancements
to the category such as improved definitions, subcategorization, or category arrangement based on
how the consumer shops. Simultaneous decreasing
stock-outs and lower inventory costs through a
more efficient assortment and promotion policy
offers substantial performance improvement
potential when a supplier initiates a category
management partnership. The consequences of
inefficient assortment are the resulting out-ofstocks of the products the consumer wants and the
warehousing costs of products the consumers do
not want (Hahne, 1998). The major consequences
of inefficient promotions are stock-outs from
increased seasonal fluctuations, a tarnished retailer
image, and high complaint settlement costs
between the channel partners.
Outcome 2: short-term cost-leadership advantage
A supplier initiated category management
program tends to focus mainly on driving out costs
by developing a better assortment and enhanced
promotions in the categories most important to the
supplier. This is low-cost defender approach to
category management. When a category plan
primarily focuses on driving out category costs
rather than on category differentiation, the
category management program will lead to a shortterm cost-leadership advantage, as exemplified in
our interviews:

From our interviews we also found that after a

supplier develops a working category management
program for one retailer, they seek to gain leverage
by offering a similar plan to other retailers to
improve the margins in the same categories. This
helps the supplier reach a critical mass that justifies
the investment in category management
capabilities. In this situation, when the supplier
develops a category management program, it
considers how a category review can address the
needs of consumers of multiple retailers in the
same category (this would lower the risk of
transaction costs). This results in a slightly
different solution for each retailer while it uses the
same process in the same category. However,
supplier initiated category management always
raises the question of what happens when a
supplier does a project with several retailers. If all
retailers get the same solution, then where is the
differentiation? The benefit is limited to lowering
costs, and thus the cost-leadership advantage is
short-lived.
Outcome 3: retailers system trust
Retailers system trust is defined as the retailers
trust and experience with the category
management process (Gruen and Shah, 2000). In
the interview sample, suppliers made a much
stronger distinction than the retailers between
retailers system trust and functional level of
trust between trading partners. The retailers
responses strongly suggested that their trust in the
category management process is strongly
dependent on the level of trust they developed with
their suppliers. The suppliers did not suggest that
retailers system trust was dependent on the level
of developed trust with their trade partner. The

Figure 1 Model 1: outcomes of supplier initiated ECR evolvement

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retailers view on system trust may explain why the

retailers that approach the supplier to enter a
category management partnership have more trust
in the category management process than the
retailers who are approached by a supplier, since a
retailer would only approach a supplier with whom
they formed a high level of trust. The following
statement from our interviews typifies this:

has early success, then that retailer will be more

likely want to enter into future category
management projects, as shown on the final box of
Figure 1.

Regarding system trust, you must break retailers

into two groups. The retailers that approach the
supplier have much more trust in category
management, and are easier to work with. The
retailers that are approached by the supplier have
much less trust in category management. These
retailers are more difficult to work with and have
more suspicion. These are situations where the
supplier must really consider the retailers
objectives, and slowly build trust (third party
expert 2).

Due to the retailers razor thin margins, a retailer

perceives any proposed changes in category
management (especially SKU reduction) as
potentially radical. In addition, it is the retailer that
ultimately must decide whether or not to
implement the proposed category plan. Thus, the
supplier (who has already made the investment in
learning category management) must convince
and reassure the retailer that the changes in the
category plan will grow the retailers business.
Understanding the retailers level of trust and past
experiences with category management has both
managerial and category planning implications.
For example, when working with an inexperienced
retailer, previous research has suggested that the
supplier partner should recommend fewer changes
(i.e. reductions in SKUs and inefficient
promotions) in a category plan (Gruen and Shah,
2000).
Before approaching a retailer for a category
management partnership, a supplier can take a few
measures to gradually build the retailers level of
trust. For example, the first time category
management is applied to a retailers category, the
category review typically results in the delisting of
several SKUs that do not add value to the retailers
customers. In this stage the supplier makes
delisting recommendations for its own SKUs as
well as competitors SKUs in the category.
Previous research has shown that when the
supplier that makes the category review delists its
own SKUs gains respect from the retailer (Gruen
and Shah, 2000). This helps ease the retailers
reluctance to delete SKUs from a category,
because the suppliers actions communicate that it
will act objectively and in the best interest of all
three parties (supplier, retailer, and end
customer). Ultimately, the retailers success with
its early category management projects is essential
to building retailers system trust. When a retailer

Retailer-initiated category management

We found that when a retailer that has had
previous success with category management, it is
more apt to engage in a complete ECR approach
where they initiate the category review. Rather
than the supplier determining the categories, in
this situation the retailer will select the categories
that are the most important to its target
consumers. In some cases, insight from suppliers
helps a retailer identify its target customers as
illustrated by the following excerpt from our
interviews:
We did not have any target customers before we
started with category management. We thought that
every customer was a target customer, from age
eight to 88. With help from our suppliers, we found
that (market segment deleted) are very strong
spenders in our industry segment (retailer 1).

Once the retailer segments its market, it tends to

choose a competent supplier in those important
categories to help determine the way to deliver
superior value. In some instances, a retailer will
choose a supplier to be a total category advisor (or
category captain), especially when it previously
had a successful relationship in category planning
that was initiated by that supplier. The process of
retailer initiated category management is shown in
Figure 2.
Outcome 1: differentiation through destination
category
A retailer that selects and defines its destination
categories based on its target consumers needs
and shopping behaviors can differentiate its entire
outlet by having the best offer in the categories
most important to its target consumers. This is the
approach of being a differentiated defender to
achieve competitive advantage. The following
industry experts statement illustrates this
situation:
Some supermarkets have more emphasis on one
category, while others have emphasis on a different
category. This is creating your destination category
based on your target customers. Your customers
will be loyal, because you offer them what they
want in the destination category. It is sustainable, if
everyone does not pick the same destination
category. Which, by virtue of the destination
category, should not happen (third party expert 5).

Theoretically, destination categories function as

the retailers strategically most critical categories
and help define the retailers value proposition by
delivering consistently superior and targeted
consumer value. These categories tend to have

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Volume 19 Number 7 2004 444-459

Figure 2 Model 2: retail initiated category management

high or moderate sales, high frequency of

purchase, and are capable of differentiating the
retailer from competitors in the minds of
consumers (Blattberg, 1995). Therefore, the
retailers must concentrate on the customers that
are important to their business, and create the best
overall offer through the categories that are the
most important to this specific target group. In
addition, since category management strategies are
on display to competing retailers (i.e. through
open shelf presentation), a retailer must have a
series of dynamic category management projects
that are proactive in exceeding consumers
expectations. Retailers who concentrate on their
consumers profile (demographics, lifestyle, and
buying behavior, etc.), which can vary drastically
from region to region, will realize tremendous
differentiation since different customer profiles
lead to different destination categories (Andersen
Consulting, 2000). For example, a supplier states:
We micro-market based on the store; asking, what
is the store demographics? This gives us higher
profits than if we offer a standard assortment
throughout Europe, which is absurd. Micromarketing can only be done by understanding the
market and the market segments (supplier 3).

A retailer that defines its category based on how

the consumer shops and provides solutions (rather
than just an array of products) to differentiate its
outlets. It also has the opportunity to increase sales
through cross-selling one product with a
complementary product in another category
(Goerdt, 1999).
Outcome 2: enhanced preplanning with suppliers
The objective of preplanning agreement is to mesh
the individual goals of the manufacturer and
retailer with the overall goal for the category, which
is to improve profits and revenue as well as to
increase competitive position of the category. The
general goals of the manufacturer are to increase
the profitability of its own brands through better
shelf positioning and better market data. The main

objectives of the retailer are to maintain control

over their assortment, to obtain above market
average growth, and to improve the profitability of
the entire category (Hahne, 1998). A preplanning
agreement is defined as collective actions that
unite the supplier and the retailer in common
activity and purpose, and a commonly agreed-to
standard of measurements and rewards (Mathews,
1997). In a preplanning agreement, the supplier
makes the commitment to develop a non-biased
category strategy unique to the retailers strategy,
while the retailer makes the commitment to share
information with the supplier and execute the
category plan.
Since the category planning process needs to
begin with the retailers strategy, the retailer must
clearly communicate its strategy, objectives, and
target consumers up the channel. As a result, both
trading partners will have a common category
strategy that is aligned with both partners
corporate strategies (Figgen, 1999). This includes
the definition of the category itself (which also can
function as an aspect of differentiation).
A category definition includes all products that are
either highly substitutable or closely related in the
consumers minds. Once the category is defined, it
should be further broken down into subcategories
that reflect the primary selection criteria
consumers use to choose products in the category
(Blattberg, 1995). Sub-segmenting the category
improves the suppliers ability to better position its
product within a market segment that is defined in
the customers eyes (Tochtermann, 1998).
Once both channel partners reach a general
understanding on the objectives of the category
plan, they must have a measurement standard,
often a scorecard, to assure that they obtain these
goals. The scorecard serves as an objective system
of checks and balances against a category
advisors opportunistic behavior. The retailers
expectations from the category plan (i.e. perpetual
category growth relative to the market average) are

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Volume 19 Number 7 2004 444-459

spelled out in the scorecard. A category plan that is

biased towards the advisors brands and/or has
insufficient analysis of the competitors brands will
unlikely deliver the expected growth, and a
scorecard will make this deficiency very apparent.
Thus, the creditability of the category advisor is at
stake with each category plan, because a retailer
will be less likely to enter into future partnerships if
a category advisor abuses its position of trust. The
long-term growth of the category (which obviously
includes growth of the advisors brands) and the
long-term relationship with the retailer provides a
very strong incentive for the advisor to put the
long-term success of the category ahead of the
short-term success of his own brands (Gruen and
Shah, 2000).
Outcome 3: enhanced loyalty to the retailer and
suppliers brands
Once the retailer and supplier define the category
based on how the target consumer shops, they
must determine how they can increase consumer
loyalty by having a more efficient assortment and
promotion policy. The major consequences of an
inefficient assortment and promotion are stockouts and confusion, which angers the customers
when they ca not find their desired products
(Hahne, 1998). Improving the ease of shopping
also can increase customer loyalty, which is an
underlying objective of category management.
There is evidence that consumer loyalty to a
particular brand decreases as the number of
products in a category increases (Goerdt, 1999).
This is illustrated in the following statement:
The strategic advantage of category management is
that you have a real assortment that is consumer
focused, and you have a clear position on the shelf.
Most customers will think you have more products,
but in reality, you have fewer products. This offers
a real strategic advantage, since you can serve your
customer better in their minds. On the other hand,
you have more space for other products and lower
costs, and a better performance for all categories.
The category could be a profit center in your
market, a real attraction for your loyal customers,
and will strengthen your customer loyalty if you
have your shelf in order (third party expert 1).

Category management will increase customer

loyalty to the retailer and to the brand, because the
target customer will be able to easily find their
desired brands at a fair price in one outlet during
each shopping trip. The following statement
illustrates this:
Customer loyalty is in the end, the ultimate
objective behind category management. The tools
to generate customer loyalty are essentially all the
tools of category management. For example, on
assortment, not frustrating the customer. So,
offering them the right assortments, the right
shelving, and most important, the right pricing
policies. Moving away from an extreme high-low.

That old policy educates the consumer to always

look for the store and brand with the lowest price,
not the brand that you trust, but the brand with the
lowest price. So, extreme high-low is the best way
to undermine loyalty. So, efficient pricing and
promotion is the most efficient tool to build
customer loyalty (supplier 1).

The major consequence of inefficient promotions

is decreased customer loyalty, because the
consumers expectations were not met. The end
customer expects to find their desired brands at a
consistent price at the same outlet each time. The
out-of-stocks and inconsistent price forces the
customers to switch brand, store, or both
(Schobert, 1996). For example, in Germany, a
customer will visit an average of 2.68 stores and
purchase an average of 2.89 different brands in a
typical category. There is evidence that once the
promotion share exceeds a certain point, the
customer brand loyalty decreases (Goerdt, 1999).
The major challenge for both the retailer and
supplier is to improve the effect of their
promotions by only offering promotions that
strengthen the position of a brand or category and
add value to the end customer (Schobert, 1996).
Outcome 4: Supplier resource commitment to ECR
activities for retailers destination category
Once the target customers and destination
categories have been defined, the supplier and
retailer must share information to gain insights on
how they can deliver unmatched value in the
categories important to the target customers
(Stefanescu, 1999). This is accomplished as both
partners gain understanding of the consumers
preference structure by addressing customer
shopping behavior, expectations, role of price in
purchase, why certain customers switch to other
brands, and how the customers of this category
compare to those who shop other categories
(Figgen, 1999).
Outcome 5: Sustainable competitive advantage
Category management will lead to a sustainable
competitive advantage due to enhanced customer
loyalty, better resource allocation and sharing, and
more efficient warehouse operations and inventory
management. Category management functions as
a resource allocation mechanism where the
importance of a category to the target customer is
the primary criterion. It dictates which categories
the retailer should review, since a retailer cannot
review every one of its 200-300 categories
(Blattberg, 1995; Andersen Consulting, 2000).
The importance of a category and brand enables a
retailer to better determine how much macrospacing (store space) to allocate to each category
and how much micro-space (shelf space) to
allocate to each brand within the category.

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Volume 19 Number 7 2004 444-459

Adopting an activity based costing (ABC)

philosophy makes the warehouse cost savings
potential from category management apparent to
the retailer. Activity based costing calculates the
cost of goods as acquisition price plus the costs of
each activity required to get the product from the
retailers warehouse to the stores shelf (Kaplan
and Cooper, 1997). The traditional costs of goods
only entails a standard mark-up from the
acquisition price. However, category management
must consider all warehousing costs, such as
receiving, storage, handling, and selection costs,
when making planogram decisions in an ABC
environment. Fast moving brands optimize a
warehouses cost structure because a retailer can
purchase those brands in full pallet quantities, and
this dramatically lowers receiving costs. Moreover,
for these goods, an outlet orders larger quantities
from the warehouse, which lowers handling costs
and storage costs. In the case of slow moving or
duplicate items, a retailer cannot economically
purchase full pallet quantities, nor can an outlet
order smaller quantities, which increases receiving
and handling costs. Category plans that include
too many duplicate items dramatically increases
the warehouse item selection costs, because
warehouse personnel must pass the slow moving
items when fulfilling an outlets order. Moreover,
effective category management also decreases a
retailers warehouse days of supply. For example, a
leading grocery retailing company estimates that if
they reduce SKUs in one warehouse by
approximately 7 percent, they can lower days of
supply by one-half of one day, which will lower
inventory levels by 3 percent. Considering average
supplier payment terms are 4 percent in 30 days,
lowering total inventory levels by 3 percent will not
only lower warehouse operating costs, it will also
provide huge savings in interest paid to their
suppliers.

boxes in italic type (the two on the right) are

applicable to both the US and Germany.

Arrange entire organization around the

customer
An organization committed to category
management implementation must move from a
centralized buying function towards a
decentralized structure in which there are crossfunctional teams that are responsible for the entire
category (Brettschneider, 2000). This requires
that they retrain staff to provide them with the
tools and skills to better segment markets based on
consumer expectations. For example, many
German retailers are not prepared to implement
category management:
We have a low level of academic education in
German retailing. That means that they are slow to
adopt new marketing philosophies. They are used
to buying things from suppliers at the lowest
possible price, and somehow get rid of it in the
shops. They are just not willing to do something
like category management, which demands them to
see the customer and supplier as partners (third
party expert 4).

Besides adopting a consumer-oriented

organizational structure, in several of our
interviews it was noted that top management must
adopt a category management philosophy and pass
this passion throughout the entire organization.
A top management that really believes in category
management will adjust their entire organization
around the customer and overcome the two major
internal barriers (structure and staff skills). Finally,
since category management requires a team effort,
top management must assure that everybody
involved feels ownership in the category plan:
The issue for implementation comes down to a few
things. Ownership is one. If you feel ownership to
something, you are more inclined to want to do it.
If category management developed a plan, and
then dumps it on operations, it is not likely to be
implemented because operations has not been
involved and feel they dont own a piece of it. So the
best way to get operations involved, not at the
implementation, but in the planning (third party
expert 3).

Category plan implementation

One reason suggested by Bishop (2000) that the
overall impact of ECR at retail has been limited is
due to inconsistent and incomplete
implementation of category management plans.
After all, an unimplemented plan will not deliver a
sustainable competitive advantage, regardless
where the problem lies along the category planning
process. Thus, this section examines the factors
that contribute to getting a category plan
implemented, and provides recommendations for
overcoming these barriers. In Figure 3 the boxes in
bold type (the two on the left) were found to be
particular to the situation in Germany, while the

Summary of barrier 1
Often, retailers top management has failed
reorganize its organization and retrain its
employees around the end customer, and they
have not passed the passion for category
management throughout the entire organization.
This firm-centric view also blocks the perceived
need to partner with suppliers in the channel.

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Volume 19 Number 7 2004 444-459

Figure 3 Category plan implementation model

Solution to barrier 1
Retailers can begin by forming more crossfunctional buying teams, so that it can combine the
product knowledge expertise of its buyers with the
customer and market knowledge of its marketing
department.
Build a functional level of trust with suppliers
If they choose a category captain, it is a strong
category captainship, and they will ask nobody else.
(Name deleted) demands suggestions from all its
suppliers, then they take the best suggestion and
form a deep relationship with that chosen captain.
However, the level of trust still needs to be
optimized in Germany. We need to convince some
of the retailers to work with suppliers and have
more trust (supplier 2).

This German example shows how trust between

suppliers and retailers must be built up to a
functional level, or else only the very few retailers
that have built trust with their suppliers will realize
the benefits of category management. When a
functional level of trust does not exist between
trading partners, the category management
partnership will not function and the category plan
will probably not be implemented.
Misconceptions over the suppliers role in the
category management partnership also contribute
to the general level of mistrust. Our interviews
showed that the term category captain that was
coined in the US is problematic in Germany:
I dont like this word category captain. I think, not
only is it a questionable name, it leads to the wrong
understanding of the supplier role. Many suppliers
think that captain means that they are the experts,
they know how it works, and the retailer should do
what they say. This leads them to propose things in
their best interest, and since they know what is best,
the retailer should do what they say. I really would
prefer to call it category advisor, it is not only a
change in word but also role (third party expert 2).

Many retailers do not form exclusive partnerships

with a category advisor, but tend to either form
category teams (two or more category advisors per
category) and/or switch category advisors every

few years. Most retailers do not want to be

dependent on one supplier for a category because
they fear that an exclusive relationship with one
supplier will weaken their relationship with
another supplier. Furthermore, they want to
combine the expertise of multiple advisors in one
category. A retailer can reduce its dependency on a
single category advisor by switching advisors, not
allowing a category advisor to advise on more than
one category, or by clearly communicating its
objectives and strategies to the advisor during the
preplanning phase (Brettschneider, 2000).
Summary of barrier 2
When retailers and suppliers do not have a
functional level of trust for a successful category
management partnership, this strongly hinders the
possibility of category plan implementation.
Solution to barrier 2
Supplier must demonstrate objectivity in its
category management solutions. Ensuring that
they delist their own SKUs that do not add value
to the end customer provides a key signal that will
take a huge step in gaining the retailers trust.
Ability to measure success of category plan
Scorecards are not so much used on a regular basis.
There are some projects where scorecards are used,
and really re-discussed afterwards on a regular
basis, which is quite helpful. As you know, we are in
retailing, and scorecards are a really formal thing,
so there is not so much enthusiasm for scorecards
under classical retailing thinking (retailer 2).

Many retailers understand the importance of

scorecards, but are slower to adopt the concept
because it involves changing the method by which
it measures its business. A recent empirical study
illustrates the importance of the scorecard. The
study showed that the degree category plan
implementation is highly correlated with the level
of preplanning agreement (Gruen and Shah,
2000). A tool to measure the success of the
category plan implementation (i.e. scorecard) is
one of the key outcomes of a preplanning

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Volume 19 Number 7 2004 444-459

agreement. Unfortunately, many retailers still lack

the performance metrics to ensure that the
category delivers value to all stakeholders
consumers, retailers, and vendors (Ernst & Young,
1999).

stagnated. These retailers might discover that

outlets with stagnated growth seem to have the
similar category offers while the best practice
retailers have categories more focused on its target
customers. Competitive comparison should
provide a strong incentive for other retailers to
segment its market based on the categories most
important to its target customers.

Summary of barrier 3
The inability to measure category success
drastically decreases the likelihood that the
category plan will be implemented and lead to a
sustainable competitive advantage.

Managerial implications
Solution to barrier 3
Retailers can adopt the scorecards or templates
developed by the worldwide ECR organizations
(available at www.globalscorecard.net) to serve as
a check-list in measuring the success of its
category plans. As a retailer gains more experience
and confidence in category management, a retailer
can construct its own scorecards and have a data
warehouse system that supports its measurement
matrices.
Category role and definition
ECR-Germany has been working to alleviate a
major problem with category management in
Germany getting started. This organization has
been engaged in establishing standard subcategory
definitions (or product classifications), which is
expected to reduce arguments over which products
belong in a specific subcategory and get past the
first step in the category planning process. Rather
than building a category product by product (and
then creating subcategories as is the practice in the
US), German practitioners can combine the
established subcategories to build a category. Data
providers (AC Nielsen, Information Resources/
GfK) can easily provide standard data based on the
established subcategory definition. While it is
more restrictive than the US approach, this model
still provides differentiation because it is unlikely
that two competing retailers would combine the
same subcategories for a category definition
(Andersen Consulting, 2000)[2].
Summary of barrier 4
Retailers that do not assign category roles and
strategies to its categories will not be able to
differentiate their categories, thus restricting their
ability to obtain a sustainable competitive
advantage.
Solution to barrier 4
Competitive analysis is critical in overcoming this
barrier. A retailer should determine how strong a
correlation there is between category roles and
financial results, and then assign roles after
comparing the categories in stronger performing
outlets with those outlets where the category has

A category management approach that evolves

from a supplier initiated to an integrated demand
side-supply side approach expands the scope of the
channel partners relationship from tactical
decisions like price and product negotiations to a
partnership that can build a sustainable
competitive advantage. As such, it combines and
leverages both the low cost and differentiated
defender positions. The findings of this study
provide additional insight into achieving the
desired ends of ECR. Thus it extends the current
research on the supply side (Kotzab, 1999) as well
as research on the demand side (Gruen and Shah,
2000).
Since the retailers experience and trust with
category management plays an instrumental role
in determining the likely outcome from a
partnership, both channel partners must address
those issues before progressing with a category
review. Also, a supplier must concentrate on
building trust with their retailers, since the
interviewed retailers strongly suggest that the level
of personal trust with a supplier plays an integral
role in their trust in the category management
process. In turn, the retailer must clearly
communicate the category role and definition to
the supplier, and they must concentrate on how
that category will contribute to the retailers overall
goal of differentiating its entire outlet. Further
research examining the correlation between
personal trust between trading partners and
retailers system trust could provide suppliers more
constructive recommendations on how to build
more effective category management partnerships.
Besides sharing consumer profile information
and point of sale data in a category review, both
channel partners will benefit when they include the
ABC implications in the category plan. Once a
retailer adopts an ABC philosophy, the retailer will
be able to measure the impact their decisions have
on the supply chain, which will enable them to
maximize category profits by lowering operations
costs and increasing revenue. The supplier must
understand the ABC implications that their
recommendations have on the total category
performance, and their de-listing justification must

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Volume 19 Number 7 2004 444-459

be supported by sales/consumer data and the

projected ABC savings from eliminating that SKU.
The ABC approach can also be integrated into the
scorecard that provides a formal means for the
retailer and supplier to determine and allocate the
savings gained from category management.
Finally, a retailer can also use this to get its
warehouse manager involved in discussion on how
to reduce its ABC costs with their destination
categories. This will enable the category manager
to incorporate the expertise of their channel
partner, store manager and warehouse manager
when making the final category decisions. The
ultimate goal is for the entire supply chain to feel
ownership in the category plan and work to build a
sustainable competitive advantage.

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The New Focus on the Consumer, Addison-Wesley,
Reading, MA.
Kaplan, R.S. and Cooper, R. (1997), Cost and Effect: Using
Integrated Cost Systems to Drive Profitability and
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Kotzab, H. (1999), Improving supply chain performance by
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Kurt Salmon Associates, Inc. (1993), Efficient Consumer
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Industry, Food Marketing Institute, Washingston, DC.

Notes
1 Information on the European ECR Conferences and the
ECR organization is available on the following Web sties:
www.ecr-europe.org www.globalscorecard.net and
www.ecr-academics.org ECR reports (such as the Kurt
Salmon 1993 report) can be obtained from the Food
Marketing Institute in the USA, www.FMI.org
2 Product classifications were also the topic discussed at the
ECR Demand Side meeting on April 5, 2000 in Cologne,
Germany, which was attended by one of the authors.

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Executive summary and implications for

managers and executives
This summary has been provided to allow managers
and executives a rapid appreciation of the content of the
article. Those with a particular interest in the topic
covered may then read the article in toto to take
advantage of the more comprehensive description of the
research undertaken and its results to get the full benefit
of the material present

Efficient consumer response in the fastmoving-consumer-goods industry

Partnering between suppliers and retailers has
become an important business practice. To guide
their partnering relationships, channel members in
the fast-moving consumer-goods industry have
adopted industry-wide processes and standards
under the umbrella name of efficient consumer
response (ECR). This is a business process and
strategy where channel members form mutually
beneficial relationships to bring better value to the
end customer. The inefficient practices identified
by ECR task groups have been estimated to add
$30-45 billion a year in north America and Europe
to the final landed cost of the retailer. However,
there is general agreement among industry experts

and academics that ECR has yet to deliver on a

great portion of its predicted promises.
Supply side and demand side strategies
ECR objectives are accomplished through both
supply side and demand side strategies. The
underlying objective of the supply side is to get the
product through the supply chain and to the end
user more quickly and more cheaply. Demand side
strategies, meanwhile, use category management
to determine which products should end up on the
retailers shelves, regardless of how fast and
smoothly the supply chain operates.
Category management
Category management is a joint process of retailers
and suppliers to manage categories as strategic
business units, in order to improve business results
by focusing on delivering increased customer
value. It begins with a strategic shift of the focus of
management attention from the manufacturers
brands to the retailers categories. A category is a
distinct, manageable group of products that
consumers perceive to be related and/or capable of
being substituted in meeting a customer need.
A typical US grocer will have about 200 categories.
Category plans are jointly developed based on
category goals, the competitive environment and
consumer behavior. Category management theory
posits that the retailers sales and profits will be
maximized by an optimal mix of brands, stockkeeping units and pricing that is determined from
the consumers perspective and based on historical
sales data. This mix is based on a systematic
category review, and it results in a category that is
differentiated, in the customers eyes, from
competitors categories. Category reviews typically
result in the elimination of several duplicate and
poorly performing stock-keeping units, the
addition of a small number of category enhancing
stock-keeping units, and adjustments in facings,
pricing, promotions and the organization of the
category.
Too much emphasis on the supply side
One reason that ECR has failed to deliver all of its
expected benefits is that too much emphasis has
been placed on the supply side and too little on the
demand side. Retailers have streamlined and
simplified their supply chains and, in doing so,
have obtained quick benefits in the form of lower
operating costs that are easy to measure. This
focus requires only a short-term partnership
commitment from the suppliers and retailers,
while it also offers the opportunity to build trust
between the two parties. But the competitive
advantages from the supply side are short lived,
since competitors can match lower costs by

458

The use of category management practices

Journal of Business & Industrial Marketing

Kyle Dupre and Thomas W. Gruen

Volume 19 Number 7 2004 444-459

adopting similar supply side standards. Retailers

need not only to control their costs from the supply
chain, but also to present a differentiated offering
that matches the needs of their shoppers.

(retailers may need outside help to decide which

products belong in which subcategory and to get
past the first step in the category planning
process). Suppliers, in turn, must concentrate on
how that category will contribute to the retailers
overall goal of differentiating its entire outlet.
Retailers should adopt scorecards or templates to
serve as a checklist in measuring the success of
their category plans. Indeed, both channel
partners will benefit when they include the
activity-based costing implications in the category
plan, and share consumer profile information and
point of sale data in category reviews.

Ways of redressing the balance

Dupre and Gruen suggest that an organization
committed to category management
implementation must move from centralized to
decentralized buying, in which cross-functional
teams are responsible for the entire category. This
requires the organization to retrain staff to provide
them with the skills to segment markets based on
consumer expectations. Top management must
adopt a category management philosophy and pass
this passion throughout the organization.
Everyone must feel that they own the plan.
Trust must be built between suppliers and
retailers. The retailer must clearly communicate
the category role and definition to the supplier

(A precis of the article The use of category

management practices to obtain a sustainable
competitive advantage in the fast moving consumer
goods industry. Supplied by Marketing Consultants
for Emerald.)

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