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Category
Management: The Road Ahead
Win
Weber’s Leading Edge Perspective
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Category
management, which is based on sound business principles, has heightened
awareness of the importance of category level planning, and it has changed, for
the better, behavior throughout the industry.
It is producing favorable results with a vast majority of those retailers
who are implementing the concept. There
are countless examples of how category management has contributed to sales and
share growth, reduced costs, improved profits as well as how it has influenced
customer count, transaction size and market basket composition.
Despite
the many successes, the concept is receiving mixed reviews from both retailers
and suppliers. Retailers are
concerned about the exhaustive resources required to implement the textbook
version of the concept, and the apparent inability of suppliers to remove brand
biases and truly focus on total category performance.
Suppliers are questioning the return-on-investment for resources deployed
to support category management initiatives.
Whatever the case, there is a growing consensus that while the concept is
producing favorable results, it is falling far short of achieving its fullest
potential.
When
category management is not measuring up to expectations, the causes can usually
be found in one or more areas related to the implementation practices being
pursued: the retailer has not been able to translate the “Best Practices”
textbook to practical application; there is no formal retailer/supplier
collaborative relationship strategy, plan or commitment across the organization;
the focus is more on internal measures than on the consumer, and category plans
are poorly executed at store level.
Our
perspective regarding each of these areas follows:
·
The publication of
industry “Best Practices” four years ago established a common understanding
of category management as well as standardized practices.
A good “starter kit” that is must reading for all beginners.
But over time this textbook has proven to be too theoretical, too
comprehensive and template driven. It does not provide adequate guidance on how
to translate theory from the classroom to practical application in the
marketplace. Consequently, those
retailers who are trying to follow the “Best Practices” guidelines are
having difficulty doing so within existing resources and capabilities. Several leading retailers have flatly rejected the
guidelines. This has led to broad
ranging applications and considerable compromise of the concept.
We have learned, beyond a doubt, that one size does not fit all.
In fact, a recent industry survey indicated that less than ten percent of
retailers are following the guidelines.
It
appears that category management may be moving forward like a rudderless ship in
the sea… with a dire need for course correction. The direction must shift toward practical application with
specific guidelines to tailor the concept to fit individual retailer situations.
·
Establishing
collaborative relationships between trading partners is an essential component
of category management. Collaboration aligns strategies, systems, processes and
people for the sole purpose of reducing the cost of conducting business while
better serving the consumer. There
has been good progress in this area driven primarily by technology and logistics
initiatives. Overall, relationships
between trading partners have definitely improved. But not to the extent required to support the evolution of
category management.
A
very small percentage of retailers are doing it right.
A large number of retailers do not believe collaboration is an important
part of the category management process; some believe in collaboration only when
it is self-serving; few have formalized collaborative relationship strategies
and plans; and investment in upgrading collaborative skills is limited to a
handful of retailers. This
situation is compounded further by behaviors such as charging slotting
allowances, charging for category captaincies and diversion of product.
In
many instances, supplier behavior is also undermining the concept. This includes marketing programs and policy decisions that
erode retailer profits, inconsistent business practices across markets, channels
and retailers, as well as quarter-end-load programs designed to shift
inventories instead of building consumption.
The inability to put brand biases aside and focus with the retailer on
total category performance is also an issue.
Over 80% of retailers surveyed say suppliers are too brand biased when
participating in joint category planning.
Most
relationships between trading partners have only moved to a more sophisticated
level of the traditional buyer/seller relationship. A few have reached the level
of true collaboration. There is
still a long way to go to achieve the levels of collaboration necessary for both
parties to achieve the full benefits of category management.
· During the past nine
years we have stated time and time again that unless the focus is on consumer
satisfaction, category management will not deliver the desired
return-on-investment for retailers or suppliers.
Unfortunately, our warnings went unheeded.
The emphasis has been on cost management, not on the consumer.
The majority of retailers practicing category management have been
focusing on internal measures instead of using balanced scorecards that include
consumer based measures. The
pressure on category managers to manage margin percentages and achieve buying
income goals has resulted in short term decisions based solely on cost… at the
expense of good consumer based decisions that deliver quality sales and profits.
This
internal focus has also been a key barrier in moving collaboration forward to a
higher level.
As
we look to the future, we are very encouraged by an apparent shift in focus
toward the consumer. A growing
number of retailers are investing more on consumer research, upgrading marketing
competencies, taking advantage of supplier consumer knowledge and encouraging
suppliers to invest in retailer specific consumer research at the category
level. A few progressive retailers
are routinely analyzing the composition of the market basket and incorporating
consumer loyalty program data into the category planning process.
Several
retailers are moving away from their traditional category management structures
to more advanced concepts that better position them to “touch the consumer.”
These
are encouraging developments that we hope will continue.
· The ability to
execute category plans at store level is a real dilemma and the potential
Achilles heel of category management. Most
retailers are spending an exorbitant amount of time preparing category plans,
but not enough time on store execution. Consequently,
new item speed to market plans, planograms, promotions and other initiatives are
executed poorly, and sometimes not at all.
As we tell many clients, “Don’t allocate resources to developing
category plans unless you can execute at store level.
It will be a waste of time and money.”
We are now at a stage in the industry when there are many questions
regarding whether the retailer, supplier, broker or other third party is
responsible for store level execution… and who pays?
We
find that many store execution issues are directly related to business process
and activity ownership. The
category management concept has never been presented to most store managers, so
they do not know its value relative to their specific stores or the
company, and they are not aware of the plans for signature and priority
categories. Thus they seldom accept
ownership of the execution of category plans.
In addition, there is often a misalignment of key performance measures
and business processes between category management and store operations.
Merchandising standards are often poorly defined and compliance
disciplines are not in place.
Only
a few retailers are positioned to execute category plans effectively. For most, this is a major problem that must be addressed.
Having
said all of this, we believe the road ahead is very encouraging, and the
direction is quite clear. Category
management will continue to evolve as a way of conducting business, but more as
a part of a total business process. The
charted course will not be any easier than the journey to its current state…
there will be speed bumps and land mines along the way.
Here’s how we see the future:
· Category management
will evolve to where it will simply be referred to as category planning, an
essential component of total business planning, by retailers in its advanced
stages of implementation. The
emphasis will be on a fully integrated business planning process.
Beginners will continue to call it category management.
· Category management
will evolve from the “Best Practices” guidelines to a value-based
opportunity focus that puts much greater emphasis on the business question to be
addressed, the need to know information, better allocation of resources and
simplification of the planning process. It will deliver a much higher return on
resources deployed by both retailers and suppliers.
· Retailers will focus
their category planning processes more on the consumer, with a significant
increase in the utilization of consumer information for strategic value and
tactical application.
· Retailers in advanced
stages of implementation will internalize the annual category planning process.
Suppliers will be used as a resource to provide consumer data and gather
market level information to support the planning process.
Suppliers will be involved in joint category planning only when the
retailer needs to address major opportunities.
Suppliers will continue to be actively involved in joint planning with
retailers at the beginning and mid stages of implementation, and with retailers
who do not have sufficient resources to “go it alone.”
· Retailers in advanced
stages will integrate the chainwide advantages of category management with a
market focused process designed to align category planning with store cluster
and store specific planning. In
other words, planning will move closer to the consumer.
This will require the evolution of organizational structures, roles and
responsibilities beyond the current textbook guidelines.
The
alignment of category planning with local market and store specific planning
will heighten the importance of timely and efficient execution at store level.
· The rules of
collaboration will be redefined and will more clearly align expectations between
trading partners. The level and type of collaboration will depend, for the most
part, on who most directly influences consumer behavior… the retailer or the
supplier. In addition, activity
based costing will become a more
important component of the collaborative equation.
· The evolution of
category management will place new demands on suppliers and brokers.
The changing roles and responsibilities of multifunctional teams will
lead to organizational restructuring. The
store execution dilemma may necessitate a major reallocation of retail
resources. And, the role of brokers
has yet to be defined. There will
be much greater emphasis on maximizing efficiencies, allocation of resources,
and return on investment.
If
retailers and suppliers pay attention to our learnings to-date, with an eye on
the road ahead, category management can measure up to initial expectations. This means moving beyond current implementation practices and
making those changes required as the concept evolves to where it is an essential
component of a retailers total business planning process.
ABOUT
WINSTON WEBER & ASSOCIATES, INC.
Winston
Weber & Associates, Inc. (WWA) is recognized worldwide as a leading
architect of category management and the one consulting firm that knows how to
translate the concept from theory to practical application.
The two retailers in the U.S. that industry surveys identify as the best
practitioners of the concept are WWA clients.
Clients also include a select list of retailers across trade channels,
manufacturers, brokers and industry associations.
WWA is a global management consulting firm with current clients in the
U.S., Canada, Latin America, Asia, and Australia.
For further insight into Win Weber’s leading edge thinking, please
contact us in one of the following ways:
Date
article published: 06/06/2000
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