Saturday, April 9, 2011

The Case Against Category Management – CM Defined


Since there are multiple definitions of Category Management, I did a little research and found the following descriptions: 1) Neilsen - CM is a process that involves managing product categories as business units and customizing them [on a store by store basis] to satisfy customer needs. 2) IGD - The strategic management of product groups through trade partnerships which aims to maximize sales and profit by satisfying consumer and shopper needs. 3) SBU - The strategic management of product groups through trade partnerships which aims to maximize sales and profit by satisfying consumer and shopper needs.

In a pure Category Management environment, CM requires the appointment of a ‘Category Captain,’ who in the case of small retailers would most likely be a retailer’s major supplier.

 A detailed description of a ‘Category Captain’ follows: It is commonplace for one particular supplier into a category to be nominated by the retailer as a category captain. The category captain will be expected to have the closest and most regular contact with the retailer and will also be expected to invest time, effort, and often financial investment into the strategic development of the category within the retailer. In return, the supplier will gain a more influential voice with the retailer. The category captain is often the supplier with the largest turnover in the category. Traditionally the job of category captain is given to a brand supplier, but in recent times the role has also gone to particularly switched-on private label suppliers. In order to do the job effectively, the supplier may be granted access to a greater wealth of data-sharing, e.g. more access to an internal sales database such as Walmart's Retail Link.

Thomas B. Leary held the position of Federal Trade Commissioner from November 7th, 1999 through December 31st, 2005. Mr. Leary defined a ‘Category Captain’ as ‘someone who advises on the best way to price, display and promote products of a particular kind, including not only the products of the captain [supplier] itself but also those of various competitors who sold to the store.’ Mr. Leary went on to point out his feelings that CM skirted areas that most likely violated U.S. anti-trust laws.

Many governments have viewed increased collaboration between suppliers and retailers as a potential source of antitrust breaches, such as price fixing, an agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand. The group of market makers involved in price fixing is sometimes referred to as a cartel.

Category Management is said to be an eight step process. 1) Define the category – what’s included and what is not. 2) Define the role of the category within the retailer. 3) Assess the current performance. 4) Set objectives and targets for the category. 5) Devise an overall strategy. 6) Devise specific tactics. 7) Implementation. 8) Review.

This eight-cycle continuous process as defined above bears little resemblance to anything I’ve seen in the small store(s) market. In fact, I think most retailers would define CM as ‘keeping the aspirin with the cough syrup’ and trying to standardize the mark-up ratios within categories. This is not CM and never has been. That definition, if taken literally would apply to the first general stores in the 1800s. 

Operators I have spoken to also report that CM is a dying methodology and should have a stake driven through its heart because it has little value other than grouping merchandise to make it easier for the customers to find things in the store.

So if we can’t rely on CM to help us increase sales and profits… what then?

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