CATEGORY

MANAGEMENT
 Retail Category Management

Chapter 1
Introduction to Category Management

Chapter Outline:
• Store as a mall
• Category management
• Category management defined
• Reasons for change to category management
• Benefits of category management
• Merchandisers vs. buyers
• Category captains and validators
• Good category management vs. bad category management
• Philosophy of category management
• Alignment with retail strategy
• Hi-Low pricing
• Productivity loop vs. the experiential loop

Learning Outcomes:
Upon completion of this chapter, the student will be able to:

• Explain the concept of category management.

• Define the term category and give examples.
• Explain the change in the relationships between retailers and their
suppliers.
• List the benefits of category management.

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Store as a Mall

The next time you walk in a grocery store, pet store, book store, or a

mass merchandiser, think of the store as a mall. Instead of seeing the obvious,

visualize the aisles as a group of independent stores in a single location, like a

mall. Each aisle represents an independent retailer seeking to attract the

consumer based upon the merchandising of products and knowledge about

consumer shopping behavior. Destination merchandise, the merchandise

consumers seek when entering the store, is no longer in the traditional location

of the perimeter of the store, but instead at the center of the aisle. This way

the consumer must walk the entire aisle to find the merchandise they seek. If

a customer walks to the center of an aisle, they are more likely to walk the

length of the aisle. Thereby walking by and hopefully purchasing other items

on the aisle besides their intended purchase. As you visualize the aisles as

units like stores, you will begin to realize they are actually categories of

merchandise (Figure 1).

_______________________

Place Figure 1: Aisles w/Labels about here

_______________________

Now begin to apply consumer behavior to the way people shop. The

key location to place merchandise with the highest mark-up or greatest

profitability is placed on the shelves located between the adult consumer’s

elbow and eye. For merchandise marketed to the children, the favored

locating is buggy height, for example, children’s cereals. Adult cereals are

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 Retail Category Management

placed at adult sight level, whereas the children’s cereals are placed on lower

shelves. Merchandise is placed in adjaciencies, complimentary merchandise

placed together, for example peanut butter and jelly or cake mix and frosting.

The next attribute of the shelving you will notice is ribboning or color

blocking. Many people look for the color or graphic of an item, rather than

the name, for instance the orange color of the Tide bottle. When

merchandising products the same product is usually placed in a vertical line,

thereby forming a ribbon of color or a color block. This ribbon is easy for the

consumer to spot, making shopping easier.

A category is a distinct, manageable group of products or services

customers perceive as related or as substitutes. A customer shopping for a

beverage may choose a soft drink to satisfy the need of thirst. The customer

will choose among all of the available brands and the packaging such as a can,

a bottle, or a carton. For instance the pet aisles represent the pet category.

The pet category in a mass merchandiser may include pet food, pet snacks, pet

toys, pet bedding, pet shampoo, etc. However, in a category killer such as

pet store, the category will be define differently, the category may be defined

as dog food, including dry and canned dog food only. A category killer is a

retailer focused on a single category of merchandise and carries the largest

available variety of merchandise. Barnes and Noble and PetSmart are

examples of category killers. The retail classification of the retailer: grocery

store, convenience store, and, category killer, assists in defining the categories

within the retail store. Categories are then divided into sub-categories, for

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instance the category may be soft drinks, the sub-categories by be regular and

diet soft drinks, then segments, then brands, and finally stock keeping units

(SKUs). In traditional retailing the triangle of analysis was inverted. Figure 2

compares the change in the hierarchy of analysis.

________________________

Insert Figure 2 about here

________________________

Now imagine each of these categories is managed separately as if the

category were a store, independent of all of the other categories within the

store. All of the performance goals are determined by the retailer, in effect the

mall manager. The person ultimately responsible for the category is the

manager of the category. The category manager must achieve the goals,

including advertising, promotions, pricing, assortment planning and

merchandising (shelf space allocation and placement) established by the

retailer. This role combines the responsibilities of both the buyer and the

merchandiser in traditional retailing. In traditional retailing organizations, the

buyer and the merchandisers work independently of each other and sometimes

in an adversarial relationship. In this retail scenario, the ultimate

responsibility for the success or failure rests upon a single individual or group

of individuals know as the category manager or category management team.

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 Retail Category Management

Category Management

Operating categories of merchandise as strategic business units

(SBU) is known as Category Management in the retailing industry. A SBU

is a distinct unit of business with their own strategies, objectives, and

competitors while serving an external market. Large companies and now

retailers operate units of their businesses separately to ensure high levels of

productivity within each unit.

In the past we often thought of the “by the seat of the pants” decision

maker ruling retailing. Legends of retailing were often described as making

their decisions based on instinct. Today’s retailers make their decisions based

on history, trends, consumer behavior, and market data. Category

management emphasizes the success in regard to sales and profitability of the

category of merchandise, rather than the success of a single brand. The

financial performance is tracked not at the department level, but instead at the

category level.

Category Management Defined

Category Management is a retailer/vendor process of managing

categories as Strategic Business Units (SBU), producing enhanced business

results focused on delivering customer value. The process includes the

development of pricing, promotion, shelf merchandising, logistics, and

product mix with the analysis of consumer data, point of sale data (POS), and

consumer behavior research. POS data includes the sales data for each store

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of all products within a category. Market data includes data related to the

market including demographic and psychographic data of the consumers, and

may include loyalty data collected by the retailer. There are several sources of

syndicated data such as Information Resources, Incorporated (IRI) and

ACNielsen. Both are examples of companies collecting point of sales data

outside the retailer for the overall market.

One of the major changes for the retailer and their suppliers is the

sharing of information and responsibility in the planning process. The

suppliers may be the distributors or the vendors or manufacturers of the

products retailers sell. Retailers and their suppliers become partners in a once

adversarial relationship where in the past they each tried to seek the most

advantages position in the relationship. For example, the supplier would say

“we’ll drop the price, if you will include us in your advertisement.” Now the

supplier will tell the retailer, “our promotion brought in an additional

$100,000 to category sales during the Super Bowl.” In the past suppliers

would ask the retailer to minimize their competitor’s space on a shelf in order

to have more space for themselves, now despite the brand, the retailer and

supplier work together to cut excess inventory. The retailers and suppliers

work together to achieve the best results for the category, not to achieve the

best results for a single supplier. This is one of the most important aspects of

category management, ensuring the best results for the retailer through

category management. The suppliers’ success is secondary to that of the

retailer.

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Reasons for the Change to Category Management

Although the term Category Management was coined in the mid

1980’s by retailers, the concept is not new. If we think about the original

Mom and Pop grocery store serving a small community we see the

foundations of category management. These retailers stocked merchandise

based upon the wants and needs of their clientele. Their records of purchases

were often seen as a result of the tab the consumer ran until payday. The

retailer anticipated the purchases of the consumers and ordered accordingly.

With the advent of self-service grocery stores, retailers began to rely on their,

vendors, distributors and food brokers to assist in assortment planning.

Unfortunately, the micromarketing aspect of the Mom and Pop store was lost

with this transition. In the 1980’s retailers began to realize the importance of

fully utilizing their limited shelf space to maintain expected profitability

levels. This initiative became known an Efficient Consumer Response

(ECR), simply meeting the needs of the consumer efficiently. The efficient

part of the definition came to mean, having the right product in the right place

at the right time in the right quantities, a basic marketing principle.

Efficient Consumer Response began as grocery stores and their trading

partners, operating on a very small profit margin, began to realize there had to

be a better and more efficient way to conduct business. Both grocers and

their trading partners or suppliers (vendors, distributors, and

manufacturers) were interested in the success of the grocery industry. Once

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adversaries, the grocers and their vendors, distributors, and brokers became

true partners in the process.

One of the first initiatives was the Universal Product Code (UPC).

The UPC was a bar and numeric code enabled retailers and their partners to

use technology to maintain and assess inventories. The UPC code also

allowed the retailers to begin to scan the code rather than having the retail

associates, then called clerks, to manually key in the price of each product.

The UPC code not only improved the ability to track stocks, but also increased

the speed of the grocery check-out procedure. During the late 1980’s and

early 1990’s a recession combined with the growth of private label products,

and a proliferation of new retail formats such as the warehouse club and

supercenter, gave the grocery industry incentive to make changes in the way

they had conducted business. This change was led by a group of industry

leaders who formed the Efficient Consumer Response Working Group in mid-

1992. They commissioned a major study to determine how the grocery

industry could save tens of billions of dollars. There were four basic subject

areas:

Efficient Assortment: to optimize the product mix and space

allocation and thereby increase sales productivity and inventory turnover.

Efficient Product Introductions: to increase the success rate of new

products by gathering and sharing among trading partners more accurate

purchasing data on a timely basis.

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Efficient Replenishment: to streamline the distribution of goods all the

way from the assembly line to the checkout line. By jointly managing

inventories, distributors and suppliers could reduce warehousing and

distribution costs.

Efficient Promotions: to identify potential cost savings arising from

reducing the administrative complexity in deals between distributor and

supplier trading partners.

This initiative became the most ambitious project in grocery retailing

since the implementation of the UPC code. The ECR group known as the

Joint Industry Project began to analyze each link in the supply system and

identify methods of cutting costs and improving efficiency, and finally to

disseminate the information through a series of reports. The Executive

Committee established a set of principles to guide the project:

1. Need to focus on the consumer

2. Improvement of products

3. Better assortment

4. Better in-stock position

5. Convenience

6. Lower cost

Although this joint commission represented many retailers and

suppliers, each independently decided how to apply the principles established

by the commission. One of the benefits of the study was the development of

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the systematic consideration of merchandise planning called category

management.

Benefits of Category Management

Category management allows retailers and vendors to customize the

assortment mix on a store-by-store basis. The major difference for many

retailers was the rigorous analysis of data necessary to maintain the best

merchandise mix. Retailers, through the use of POS data, were able to

determine the sales of each given product within a category. Then they could

make valid decisions about the merchandise they needed to carry and

determine the optimal quantities of the product. Retailers began to realize all

grocery stores were not the same, because their consumers were different.

Purchasing behaviors of consumers was often dependent upon the region of

the country in which they lived, their racial/ethnic identity, their religious

preferences, and their family sizes. Retailers could now tailor the

merchandise mix to meet the needs to the demographics and lifestyles of the

customers at the store level.

Retailers also eliminated unnecessary products such as those selling

poorly or rarely. This process is called delisting, removing a product from the

list of inventory for a given retailer.

Category Management has allowed retailers to improve their product

assortment and merchandise mix, lower overall prices, reduce their out-of-

stocks (OOS), and make shopping the store easier for the consumer. There

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are many different figures related to the improvement of a category of

merchandise, but one used in the industry is a seven percent increase for a

retailer’s category, a five percent increase for a vendor within the category

and an increase of mark-up or margin of five percent for the retailer, all while

carrying fewer items and reduced space allocation. Categories become profit

centers with space allocation aimed at maximizing the value for the consumer,

while improving the profitability of the category. An important component of

category management is space management. Space management is the

allocation of shelf space. Suppliers and retailers have found efficient and

effective space management to increase category sales, increase category

profits, reduce out of stocks, reduce lost sales due to out of stocks, and make it

easier for the consumer to shop the category.

_________________________

Interview with Retailer (Wal-Mart, Michael McGuire) about here

________________________

Merchandisers Vs. Buyers

In traditional retailing, merchandisers and buyers were separated by

functions and often goals. The merchandisers prepared planograms (Figure

3) or photographs of displays based upon the principles of design taught in the

field of visual merchandising. Several companies offer sophisticated

planograming software products, including JDA Space Planning software

used in this book. Some retailers prepare a visual display and then photograph

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the display. A planogram is a detailed depiction of a display. Some retailers

like Wal-Mart call planograms, modulars. A planogram is the result of a

careful analysis of data. When developing a planogram, category managers

determine the best assortment of merchandise within a category based upon

data. Placement of products is determined to achieve the greatest

productivity. Each product is analyzed based upon the projected sales during

the sales period. This includes the number of facings for each product. A

facing is the number of products facing the consumer. For instance a bottle of

catsup may have three facings, three bottles face the consumer at the front of

the shelf. The number of facings is determined by the optimum assortment

based on the number of items anticipated to be sold within a given time frame,

this is called days of supply.

______________________

Place Figure 3: A planogram approximately here

________________________

In the past, buyers worked with vendors to determine the appropriate product

mix by unit cost, open to buy, and trends. Unfortunately, this often placed the

two at odds. The merchandiser’s attitude when sales were poor was “if they

bought the correct merchandise, I could sell the merchandise as I design the

best display.” Buyers would also shift the responsibility to the merchandiser

by saying “if you placed the merchandise in the correct place, on the correct

fixture, in an attractive manner the merchandise would sell.” Unfortunately,

no one really took responsibility for the welfare of the category of

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merchandise. Buyers often dealt with a single vendor, purchasing all of a

single brand for the entire chain and worked independently of the

merchandiser. After the goods were purchased, the merchandiser designed the

displays and make recommendations for the placement of the merchandise

within a store. The lack of communication and coordination between the two

often led to a poor or subpar performance. As one buyer bought from a single

vendor, another buyer may have bought from another vendor—the lack of

coordination would cause the store to have multiples of similar merchandise

competing on the same floor just with a different brand. This hindered the

retailer from developing a unified approach to a product line. Finally, retailers

often do not merchandise products in the same way people buy them—a jean

shop without tops. In category management the dynamic changed, retailers

employ buyers who work closely with category managers. Buyers continue to

purchase from manufacturer’s sales teams, however they are advised by the

category management team for the recommended assortment of all goods

within the category—included in the assortment are all goods sold by multiple

vendors. Retailers may have their own category managers, may outsource

category management activities to consultants, or may use the Category

Captain arrangement.

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Category Captains and Validators

An essential component related to the success of the implementation of

category management is the Category Captain arrangement utilized by many

retailers. A Category Captain is a supplier or vendor, often but not always

the category leader. The category leader is the vendor with the largest

market share. Retailers choose a Category Captain for each category of

merchandise in the store. The category captain performs as merchandiser for

that category. The category captain has access to all of the data for that

category, including POS data, market data, and syndicated data from sources

such as Nielsen. The Category Captain is responsible for the success of the

category development and growth. They must analyze the data to recommend

prices and shelf-space allocation of their own products as well as their

competitors.

In addition to the role of Category Captain, retailers usually assign a

competitor the role of Category Advisor. The Category Advisor may also be

called a Validator, Co-Captain, or Consultants however their role remains

the same. The Category Advisor provides a second opinion in regard to the

decisions made by the Category Captain. They review the planograms and

promotions to determine if the planogram is fair to all vendors within the

category and report to the retailer. Depending on the philosophy of the

retailer, the role of Category Advisory may be strong or weak depending on

the breadth and depth of their decision making responsibility.

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Each year Progressive Grocer (www.progressivegrocer.com) gives

awards to the best Category Captains. In 2006, the criteria were: (1) product

innovation; (2) creativity in merchandising, marketing, promotion, and

advertising; (3) consumer insights; (4) innovative, dynamic category

management tools; (5) demonstrated commitment to meeting the retail

consumers’ specific needs; (6) effectiveness at differentiating a line or brand

within the category; (7) effectiveness at lifting sales for a brand’s products in

the category; and (8) hard evidence of market-specific or account specific

sales results that support the vendor’s claims of excellence. The importance

of the role of both the Category Captains and advisors are evident in the

criteria to determine the best.

Although the Category Captain arrangement has become very

important to success of retailers, the arrangement is not without problems.

Because vendors have access to their competitor’s data there are opportunities

to harm their competitors. One of the major problems cited in lawsuits

regarding Category Captain arrangements are (1) the ability to exclude rival

vendors from the planogram or greatly increase the cost of competing for the

rival and (2) the Category Captain can use the role to facilitate collusion

among rivals or competing retailers. In regard to exclusion, Category

Captains determine which brands and the sizes within the brands are included

in the planogram. They may limit the amount of shelf space, merchandising

opportunities, and promotional advertising given to the other vendors. In

regard to collusion, the Category Captain has access to proprietary data and

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information which if shared with another vendor, could be used to exclude

other vendors from successfully competing.

Good Category Management vs. Bad Category Management

Although category management has existed as a term for a number of

years, the concept and actual utilization vary within retailers and their

vendors. For a retailer and vendor to successfully implement category

management, a change in business practices must take place. Bad category

management is “doing business as it has always been done, just with a new

name”, good category management requires an organizational change and

commitment in time, education, technology, and personnel. Bad category

management is using the category captain arrangement as a free labor for the

retailer, good category management is realizing the true nature of a

partnership based upon sharing information for the success of the entire

category. Bad category management is a project separate from the day-to-day

operations of the business; good category management is driven by long-term

strategies in regard to assortment, promotion, merchandising, shelf allocation,

pricing and profitability. Bad category management is preparing a planogram

from a template similar to those prepared in the past; good category

management is preparing a planogram for a specific market and a specific

store by analyzing POS data, market data, and consumer data. For the

category management initiative to work, the process has to be flexible and

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realistic, involving teams, focused on the consumer. A summary of good and

bad category management characteristics are shown in Table 1.

__________________

Table 1: Good Category Management Vs. Bad Category Management, Goes

about here

__________________

Philosophy of Category Management

Once the mainstay of consumer packaged goods (CPG) or fast

moving consumer goods (FMCG), category management is used by a

number of retailers outside the grocery arena such as bookstores and petstores.

In 2003, Cannondale Associates stated retailers attributed a 14 percent sales

growth due to category management, while manufacturers reported an eight

percent gain (www.nacsonline.com). However, the general consensus has

been around a seven percent increase in sales growth for the retailer and five

percent increase for manufacturers or vendors.

Alignment with Retail Strategy

Category management is used by retailers to support their strategic

purchasing decisions through the development and implementation of

sourcing strategies. The core features of category management are (1)

commitment to institutional change, (2) teamwork, (3) decisions based upon

data analysis, (4) comprehensive tools and techniques to assist in analysis

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including software applications, (5) linkage between the business needs and

sourcing including the Internet and business intranet, and (6) a history of

success. In order for the category management process to be successful, all

core features must become part of the retailer’s strategy and business process.

Because category management relies heavily on technology, the retailer must

commit to provide funding for the necessary tools and training of personnel.

Most retailers and manufacturers employ the use of an intranet. An intranet

is a privately owned computer network in which only authorized persons may

access through a username and password. Ultimately, the application of

category management within the retail organization is to improve efficiencies

and reduce costs, which finally increases profitability. In addition to the

implementation of category management as a retail strategy, two other facets

of retail strategy impact the implementation of category management, high-

low pricing and the productivity loop.

High-Low Pricing

Most retailers choose a retail strategy based either upon every day low

pricing (EDLP) or high-low pricing. The choice of strategies greatly

impacts the effectiveness of category management. In order for category

management to be most successful, a certain degree of predictable consumer

behavior and consistent vendor pricing is essential. When choosing everyday

low pricing, retailers seek to price a product for the long-term, negotiating

with vendors for the lowest possible price for a period of time. When

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consumers buy the product they assume the price will remain consistent and

generally do not buy excessive quantities of goods.

When a manufacturer offers high low pricing, the manufacturer offers

retailers a discount for a given product for a limited period of time. The

retailer buys in large quantities and warehouses the goods until they are

needed in stock at the stores. The retailer then offers the consumer a

discounted price on the goods for a short time—for example the “weekly

special’. Although there are advantages and disadvantages to both strategies,

the high low strategy may become a burden for the retailer. Consumers begin

to expect weekly specials where they buy in bulk causing an increase demand

for shelf space and increased stocking costs to maintain an inventory for that

good. In addition, retailers must invest funds for warehouse space. Just in

time (JIT) inventory is based upon ordering goods and have them delivered

“just in time” to sell the goods, thereby eliminating storage fees and allowing

cross docking. The principle of cross docking is delivering merchandise to a

distribution center and moving the product across the dock to the retailer’s

trailer for immediate delivery to the store.

Another issued related to high-low pricing is forward buying. Both

retailers and their consumers participate in forward buying, simply buying

excess products when they are on sale. This cycle of high and low pricing,

and forward buying (see figure 4) results in retailers becoming unable to

adequately predict the buying patterns of their consumers and manufacturers

can not maintain sustained and consistent periods of production. When they

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plan to offer lower prices for goods to retailers, they must increase production,

often meaning higher labor costs. Retailers participating in forward buying

must then incur increased storage costs in distribution centers as most retailers

have eliminated most of their onsite storage.

__________________

Figure 4: Forward Buying/High Low Pricing, Goes about here

__________________

Productivity Loop Vs the Experiential Retailer

The American consumer has been described as seeking the lowest

price available, the value seeking consumer, or the consumer seeking an

experience with the retailer. Grocers in the United States are designing their

stores to meet the needs of these extremes in consumer behavior. Some

grocers like SuperValu, Food City, Wal-Mart, Bi-Lo, Adli, and Food Lion

seek the value oriented consumers in the majority of their formats. Another

strategy is the premium supermarket, like Kroger’s Fresh Fare, Whole Foods

and United’s Marketstreet format offer a variety of experiences including

aroma therapy massages, coffee shops, cafés, Wi-Fi access, prepared meals,

sushi bars, and specialized bakeries for the consumer seeking a shopping

experience. The grocery stores seeking the value consumer, must continually

drive down prices and seek new consumers to be successful.

The productivity loop, Figure 5, is a strategy in which retailers seek

to constantly lower costs thereby lowering prices for the consumer, hoping the

consumer will then purchase more goods. The challenge of this strategy is

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maintaining the cycle within the given market constraints. In order to be truly

effective with this model, the retailer must constantly attract new and more

consumers to their retail stores and continue to lower overall costs.

____________________

Place Figure 5: Productivity Loop Approximately Here

_____________________

The experiential retailer offers consumers a constant and changing

variety of products and experiences by offering a unique environment. In this

environment the retailer focuses on the experience, the atmosphere of the

store. Whereas the productivity loop seeks to constantly lower costs, the

experiential retail incurs great costs—including specialized labor and

elaborate store atmospherics—to maintain (or increase) prices to attract more

consumers and continue to offer new experiences. Figure 6 illustrates the

experiential loop.

______________________

Place Figure 6: Experiential Loop Approximately Here

______________________

The impact of both strategies can easily be seen in category

management— advertising, promotions, pricing, assortment planning and

merchandising—shelf space allocation. Category management is a retail

strategy, dependent upon the successful execution throughout the retail

chain—logistics to in-store execution. Retailers are currently successfully

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executing category management at various levels. Category management like

all initiatives will continue to evolve and change. In the following chapters

you will learn more about the specific details of the category management

process.

Review

Retailing has in many ways returned to the principles of the Mom and

Pop retailers. The need to offer the right product at the right time at the right

place in the right quantities by micromarketing for specific consumers in

retailing is implemented through the process of category management.

Category management is the management of a category of goods within a

retailer as a strategic business unit. A category is a distinct, manageable

group of products or services consumers perceive as related or as substitutes.

For the process of category management to be successful, category managers

must utilize point of sale data, consumer data, and consumer behavior. The

Efficient Consumer Response (ECR) initiative formalized the process of the

category management. The guiding principles (1) focus on the consumer, (2)

improvement of products, (3) better assortment, (4) better in-stock position,

(5) convenience, and (6) lower costs. Planograms are the graphic

representation of the process of category management. Several career paths

have developed through the advent of category management. Categories are

managed by category captains, category managers, and overseen by validators

or category advisors. Category management is a retailing strategy.

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Discussion Questions

1. What is Category Management? What are some of their core features?

2. What are Strategic Business Units and how are they related to

Category Management?

3. Describe the reasons why retailers are using Category Management.

4. Discuss the impact of Efficient Consumer Response on retailers and

Category Management.

5. Describe the role of a Category Captain and Category Advisor.

6. Explain the difference between Category Captain and Category

Leader.

7. What are some of the characteristics of a good Category Captain?

8. Discuss how Every Day Low Pricing (EDLP) and High-Low Pricing

can impact the outcome of Category Management. Which method

would you recommend to a retailer who is using Category

Management? Why?

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Resources and Websites:

• Desrochers, D. M., Gundlach, G. T., & Foer, A. A. (Fall, 2003).

Analysis of Antitrust Challenges to Category Captain Arrangements.

Journal of Public Policy and Marketing, 22(2), 201-215.

• Category Management Report prepare by the Category Management

Subcommittee ECR Best Practices Operating Committee and The

Partnering Group, Inc. (1994?)

• http://www.ftc.gov/speeches/leary/050328abainterview.pdf

• www.acnielsen.com

• www.cpgcatnet.org

• www.fmi.org

• www.nacsonline.com

• www.progressivegrocer.com

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List of Figures:

1. Store Aisle

2. Triangle of Category Development

3. Planogram

4. Forward Buying and High Low Pricing

5. Productivity Loop

6. Experiential Loop

List of Tables:

1. Good versus Bad Category Management

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List of terms:

Adjaciencies Fast Moving Consumer Goods (FMCG)

Category Forward Buying

Category advisor High-Low Pricing

Category captain Intranet

Category killer Just in Time Inventory (JIT)

Category Leader Manufacturers

Category management Modular

Color blocking Out of Stock (OOS)

Consultants Planograms

Consumer packaged goods (CPG) Point of Sale

Cross Docking Productivity Loop

Days of Supply (DOS) Ribboning

Delisting Strategic Business Unit

Destination merchandise Space Management

Distributors Supplier

Efficient Consumer Response (ECR) Trading partners

Every Day Low Pricing (EDLP) Universal Product Code

Experiential Loop Validator

Experiential Retailers Vendors

Facing

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 Kitchen Bathroom Laundry Cleaning
Supplies Supplies Supplies Supplies

Sugar and Cake Mix Frosting Baking

Flour Supplies

Figure 1. Store aisles as categories of merchandise Coffee & Sports Bottled Soft
Teas Drinks Water Drinks

Dog Treats Dog Food Cat Litter Cat Food

 Category Management View Traditional View

SKU Gross Margin

Category
Margin

Subcategory Vendor Gross Margin

Vendor Gross Margin Subcategory

Category
Margin
SKU Gross Margin

Figure 2. Efficient Consumer Response Contrast Traditional View Versus Category Management View
Figure 3. Example of a planogram
 $35
Sales Go Up $3,500

$30 $3,000

$25 $2,500
PRICES

$20 $2,000

SALES
$15 $1,500
Prices
Go Down
$10 $1,000

$5 $500

$0 $0
Jan Feb Mar Apr May Jun Jul Aug

Figure 4. Forward Buying and High-Low Pricing

 Superior Execution

Lower Cost
Structure

Higher Sales
Lower Prices

Figure 5. The Productivity Loop

 Superior Execution

Increase
Atmospherics

Higher Sales
Better Experience

Figure 6. The Experiential Loop

Table 1: Good Category Management vs. Bad Category Management

Top to bottom organizational

Business as usual. commitment in time, technology, and
personnel.

The category captain arrangement provides A true partnership between retailers and
free labor for the retailer provided by the their suppliers by sharing information for
supplier. the success of the category.

Long-term strategies in regard to

A separate project unrelated to the
assortment, promotion, merchandising,
daily retail activities.
shelf allocation, pricing and profitability.

Preparing a planogram for a specific market

Preparing planograms from a
and specific store by analyzing POS data,
template from the past.
market data, and consumer data.

A flexible process, that is realistic,

A static, repetitious process.
involving teams, focused on the consumer.