Category Management is a retailing concept in which the total range of products sold by a retailer is broken down into discreet

groups of similar or related products known as product categories. E.g. toothpaste, grains, oil and ghee, soaps and detergent, baked beans, cosmetics, dog food, etc.

 A merchandising technique that firms use to improve productivity.

Focuses on the performance of product category results rather than individual brands. Retail managers make merchandising decisions that maximize the total return on the assets assigned to them. It arranges product groupings into strategic business units to better meet consumer needs and to achieve sales and profit goals.

 Little amount of profit can be got through price negotiations, greater profit is made by increasing total level of sales in a category
The relationship between retailer and supplier is more collaborative in nature (not adversarial) with more openness and information sharing. Each category is run like a mini-business, managed by both the retailer and suppliers, with its own category turnover and profitability targets. Suppliers are expected to propose actions (such as new products or promotions) only if they add to total category sales and shopper satisfaction.

To maximize profitability, decide quantities to buy from 3 vendors for 3 products called 1, 2 and 3: Stocks not to exceed 1000 SKUs Margins per unit sold are Rs.20, Rs.28, and Rs.35 Space reqd. per unit of SKU is 0.5 sq.ft, 0.8 sq. ft and 1 sq.ft Total space available is 800 sq.ft. Total budget available is Rs.300,000 Purchase price per unit is Rs.200, Rs.300 and Rs.400

Use linear programming to solve

 The lowest level at which data needs to be captured by a store representative is at the size and price levels
The format in which this data is to be captured is usually implemented at the billing stage

For determining the SKU being sold, material code is most important representation for store manager
PA-A12MFFCHNCL represents Park Avenue brand of Autumn 12 Mens Full Formal Shirt with Check Design and Normal Collar of L size

For each product category the material or style code would differ depending on the number of levels on which data needs to be captured
Codification is to be carefully done while devising manual codes or barcodes

1. Define category: in terms of products included/excluded so as to be either interrelated or substitutable when it comes to meeting consumer needs.
2. Assign a role to the category based on several questions: role can be niche, staples or fill-ins. Other roles can be destination, preferred, convenience, occasional or seasonal
+ + + + How important is the category to the consumer? How important is the category to the retailer? How important is the category to the retailers competitors? What is the categorys outlook in the marketplace?

3. Assess the category to find opportunities for improvement: understand existing performance through sales, billing value per customer, footfall, conversion ratio, category profitability

 Destination categories (2% - 7%)

Most important category for retailer Store is well known for selling of this category due to the best collection available at the best prices (e.g. consumers checking products and prices of air conditioners and refrigerators at Chroma, Terry Wool collection in Raymonds) These categories do not need heavy promotion Retailers objective is to deliver value through products in this category, build a distinct position for the store in the minds of consumers

Preferred categories (55% - 60%)

These are there in the store to build sales and volume for the store based on the sheer strength of quality, range, price and image for giving value for money Retailer takes effort in promoting sales of these categories as they bring profits, cash flow and ROI

 Convenience categories (15% - 20%)

Consumer may not like to go shopping for his/her peripheral needs, stores which help him overcome this are preferred over other stores, even if consumer has to spend little extra on such items (e.g. Raymonds store selling socks, wallets, handkerchiefs, belts)

These categories turn out to be more profitable than other categories

Occasional/seasonal categories (15% - 20%)

Not there in the store throughout the year Appear during seasons (sweaters in winters) or occasions (festivals) Good source of profit Particular attention to stock levels

By dividing categories among different roles retailer can divide his resources like stock investment, space and marketing spends, based on such division

4. Set performance targets and measure progress with a category scorecard.

5. Create marketing strategy that draws the picture of how to achieve the category role and scorecard targets. 6. Choose tactics for category assortment, pricing, promotion, merchandising, and supply chain strategies. 7. Roll out the plan. 8. Review performance regularly and adjust as needed.

 Retailers act as equal partners. Retailers get input from manufacturers so they put the best possible plan together. Retailers are open minded and willing to change. Retailers that give manufacturers proper lead timeand timely goals and suggestions receive the highest-quality work.

 Different goals among retailers senior managers, category managers and operations managers impede the process. Retailers have a template fixation. Yet, a template alone cannot explain why shoppers choose a given product or category. Retailers expect manufacturers to do more than their share or to pay more than their share for gathering and analyzing data.

 Manufacturers gather data on consumer purchases and make recommendations to retailers.

Manufacturers with clearly defined and supported plans are viewed favorably.
Manufacturers help retailers understand how to get more out of shopper traffic, build shopper loyalty, incremental volume and return on merchandising assets.

 Manufacturers make recommendations that consistently favor own brands. Manufacturers just drop a completed template off with their retailers.

Manufacturers do not maintain confidentiality for shared data or recommendations.

LOW HIGH

HIGH

LOW

 Product categories with a high market share (preferred role, some destination role) Include products brought frequently and high penetration Critical to continued future success Hold onto ones share in competition from new entrants May need cash to sustain their growth by transferring funds from cash-cow categories As categories mature, they enter into cash cow quadrant, preferable to dogs

 Support current marketing programs Avoid out of stock possibilities so as not to lose customers Add on new items to category, to make the range complete Regular review of pricing, do selective price reduction if necessary Maintain a close monitoring on sales to stock ratio along with GMROI

 Enjoy high market share (some destination categories) Contribute significantly to overall sale but have low growth rate Exploit the lead market position by generating cash flows (high profit margins, lower marketing expenses) Not to devote any new investment, just to maintain position Cash flow generated is transferred to stars and question mark Not cut expenses as it will push category to dog status (lose profits)

 Reallocate space (sales-to-stock ratio) Have cross promotion with items in star category Key items of category not under-promoted w.r.t. competitors

 Categories have low market share, high market growth Convenience products that act as fill-ins or value enhancers (chicken/paneer masala in shop) If analysis shows category has chance of developing into star position, retailer should transfer funds from cash cow to build question mark category into star If not, retailer turns this category into a niche one/divests from this category category may turn into dog

 Reduce number of slow-moving items, re-look allocation of space

Identify sub-categories for retaining items with good sales-to-stock ration turn them into stars
Weed out slow movers, add new fast moving items Tie-up promotions with stars or cash cows

 Categories with low market share, low growth rate Retailer may not be able to get much profit Do not fit with plans of retail store May have lived up their lives/categories introduced due to sudden fad Objective is to get into niche area with good growth/withdraw or close business

 Make a thorough review of the assortment vis-vis market needs Check possibility for increasing prices/discounts Assign the space to other categories by reducing space of existing categories