What is category management?
In today’s competitive retail landscape, retailers need to truly understand their customers shopping behaviour in order to ensure they are creating the right environment and stocking the right products in the right places. This is known as category management and giving customers a positive experience that will keep them coming back for more.
There are many elements that go to make up a great shopping experience but today I’m focusing on category management. Shopworks defines this as “an ongoing process that involves managing groups of similar products as business units called ‘categories’. By using customer information, gathered from data analysis, these categories are optimised to satisfy shopper needs and in the process, help to drive increased revenue for the retailer.”
Category management is well advanced in the FMCG (fast moving consumer goods) world. However, retailers in other fields, particularly small to medium players, are not so familiar with this important process. And not practicing good category management can lead to a loss in sales, hamper trading relationships and potentially fail to manage risk.
Proven retailer benefits of category management
Those who embrace category management reap the rewards. Take Tesco, who through the launch of their club card in 1995, rewarded customer loyalty with goodies whilst gaining huge insights into their customers’ behavior. For example, what, where, when and how they purchased what they purchased. They even could correlate external factors to customer behavior such as the direct affect of hot weather on ice cream sales. These insights enabled Tesco to refine store layouts, prioritise the display of products at crucial times and give the customer a tailored in-store experience, whilst increasing margin with better stock management.
Such valuable insights took Tesco’s grocery market share from number 3 in the 90’s, to number 1 very quickly, where they’ve remained ever since.
And it’s not just grocers that benefit from practising category management. Apple have used technology to understand where their customers go to most in store. They analyse customer flow and navigation to optimise store layouts in order to encourage people to browse more areas and spend more time in store; which ultimately leads to increased revenue.
But category management hasn’t always been around; those who shouted loudest or had the biggest cheque book would gain the best in-store position. This was great for the brand or manufacturer but as customers weren’t necessarily being presented with products that met their needs, it was time for a change. The introduction of POS (point of sale) systems recording what customers were buying and when, allowed retailers to better understand how to categorise products, manage stock, and forecast for the future. The more recent arrival of big data companies analysing information from loyalty schemes, people tracking and mobile usage, has resulted in retailers becoming even smarter.
The 7 step category management process
So how do you approach category management? We liken the process to running a car; there are lots of things you need to do to ensure it continually runs smoothly; air in the tyres, fuel in the tank, a regular service etc. and we suggest a 7-step process to avoid a retailers MOT fail;
1. Product categorisation; grouping the products that you sell into small groups of similar products.
2. Define category roles; how important each category is to your business.
3. Category optimisation; favouring your best and removing your worst performing products.
4. Store clustering; grouping similar stores for more efficient logistics and a more tailored range of products.
5. Space allocation; assigning the right amount of space to each product.
5. Adjacencies; placing products near others that will drive spend per transaction and finally;
7. Planogram; creating a visual store plan that communicates the location and amount of space given to each product in store.
Shell improve food category sales by 49.2%
We applied these steps when working with Shell to revitalise their convenience offer. Using research and data analysis, we improved their product offer and layout of their forecourt shops. This led to impressive results. Food category sales improved by 49.2%; total shop sales increased by 15.1%; while shop margins improved by 19% as customers bought more higher margin items. Shell has so far converted some 400 stores since 2012, with another 50 per year in the pipeline.
So, with the influx of customer information and of new technology it’s never been more important and easier for retailer businesses to practice good category management. Those who embrace it will reap the positive results and keep their customers happy. And don’t forget a store, like a car, topped up with the right products in the right place will lead to a smoother and happier journey for both you and your customers.
If you’d like to find out about how we can help you optimise your category management strategy in your stores we’d love to hear from you. You can call us on +44(0)1442 875666 or email us here