Category Management - Process JLP

Category Management Process
Jos Luis Portela

1
Pagina 1 de 37
Professor of IE Business School
Contents
1.
Category Management - Whats the idea?
2.
The Category Management Model
3.
The evolution of best practice Category Management
4.
To what extent has best practice been adopted?
5.
Case Studies and Results
6.
Conclusion & future direction
7.
Our Metodology
1. Category Management
- Whats the idea?
Category Management - whats the idea?
Category Management is an initiative

which helps manufacturers and
retailers focus together on the
consumer
Before Category Management, retailers
focussed on departments and
manufacturers on brands and products
Category Management processes
attempt to shape and manage a group
or category of products in a way that
will satisfy consumer needs and
stimulate the consumer to buy more
Category Management is not a
replacement for Brand Marketing, retail
marketing or the buying/selling process
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Category Management is a critical part of the ECR led

initiatives
Retailer / Supplier Cooperation

Efficient Replenishment
Efficient Promotion
EDI
Efficient Store Assortment

Efficient Product Introduction
Supplier / Retailer Cooperation

Source: The Partnering Group and Roland Berger & Partner
Category
Management
Definition of a Category
A CATEGORY IS A DISTINCT
MANAGEABLE GROUP OF
PRODUCTS/SERVICES THAT
CONSUMERS PERCEIVE TO BE
INTERRELATED AND/OR
SUBSTITUTABLE IN MEETING A
CONSUMER NEED.
Definition of Category Management
CATEGORY MANAGEMENT IS A
RETAILER/SUPPLIER PROCESS OF
MANAGING CATEGORIES AS STRATEGIC
BUSINESS UNITS, PRODUCING
ENHANCED BUSINESS RESULTS BY
FOCUSING ON DELIVERING CONSUMER
VALUE
Category Management - What is it?
Philosophy
for managing a retail business that

recognises categories as strategic
business units
Process
that results in joint retailer and supplier

business plans
Organisational
Concept
that integrates distribution, procurement,

merchandising and service decisions
Category Management - Themes

Focus on the Consumer - Its about
driving consumer value. This is the
number one focus - the consumer.
Total Systems Approach - Its not just
buying and selling nor is it just shelf
planning.
Agree to Common Approach - There is no
one-way to do category management.
Different retailers and suppliers are likely
to develop different approaches.
Consumer Insight is fundamental to Category

Management
Fundamental to Category
Management is the sharing of
consumer insight - who are
category customers / segments?
What are their needs from the
category? How do they shop?
Etc.
Category Management process is
based on a simple learning circle
For a retailer, the challenge is to
draw on insight from several
suppliers. Often retailers identify
a category captain - the
manufacturer who has the lead
role in driving category insight
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The benefits of Category Management are different for

retailers and manufacturers
Retailer Perspective
Manufacturer perspective
helps to leverage manufacturer

research and insight into consumer
opportunity to influence retailer decisions

on range, layout etc.- especially if
category captain
channels manufacturer resource into

category analysis on behalf of retailer
forces manufacturer to focus on

improving retailer business not trying to
sell in ideas that only benefit the
manufacturer - e.g. new products
which duplicate existing competitor
offers
drives/facilitates efficiency
improvements in supply side
11
opportunity to learn from access to

retailer data - especially loyalty card data
opportunity to target specific consumer
segments via retailer loyalty data
improved likelihood for new products to
be listed and promoted in store
more efficient and effective promotion
execution
There are four key issues that are evolving traditional

brand and retail management into category management
1. Consumer
Change
2. Competitive
Pressure
Traditional Brand/
Retail Management
3. Economic /
Efficiency
Considerations
4. Information
Technology
Advances
12
Category
Management
Category Management - Why do it?

1. Consumer changes - retailers and suppliers must better understand
and meet consumer needs. This is at the heart of Category Management.
Category and Retail Management Program
Consumers
Retail Outlets
Consumer/Shopper Buyers and Needs
13
Marketers

2. Competitive Pressures - new approaches are necessary to meet the
challenges of todays intense and varied forms of competition
- New store formats and category killers
- Difficulty for retailers and suppliers to differentiate their stores,

brands and products
14

3. Economic/Efficiency Considerations - Category Management can
provide the work process and organisational designs to achieve greater
efficiency and growth
- Driving or capturing growth during economic lows and highs
- Consolidation in the retail industry across Asia Pacific

- Revenue and share price performance
15

4. Information Technology Advances
- Availability of data - Syndicated, POS, Consumer panel data

- Common languages amongst retailers and suppliers
- Unlock data to make decisions

Information sharing between trading partner
16
Category Management - How is it different?
The principles and concepts of Category

Management are not revolutionary. Many of the
concepts are back to basics in approach.
Re-focus on consumers needs for value, variety and service as
a basis for competitive differentiation
Lower costs through greater work process efficiencies
17
Category Management is NOT...

Shelf / Space planning - this is a tactic of category
management
Focusing on internal measures at expense of consumer
orientation
Charging for new product introductions
Charging for category captaincies
Charging for end caps or retail space rental
A supplier method to increase shelf space
Showing only favourable information to a retailer
Carrying brand biases into the planning process
A way to introduce special promotional offers and products
18
What are the challenges of Category Management?

Unwillingness to change culture
Implementing without skills
Inaccessibility of information
Unwillingness to share information
Not understanding the importance of partnering
Performance measures out of alignment

Poor execution at a store level
Brand vs category focus
Lack of skills and resources
19
2. The Category
Management Model
The Category Management Model

Category Management
Collaborative
Relationships
Performance
Measurement
Strategy
&
Business
Process
Enabling
Technologies
Organizational
Capabilities
STORE EXECUTION &

MAINTENANCE
21
Performance Measurement
Definition:
Performance Measurement included a set of methods and tools used to
determine the progress of the category
Objective:
To monitor the progress of the Category Management process as well as the
individual Category Business plans against objectives and company goals
To improve business planning and decision making and to serve as a basis

for reward and recognition systems
22
Types of Performance Measurement

1. Company Level Performance Measurement
Mission
Overall corporate objectives/measures
2. Category Performance Measurements

Retailer Category Measures - targets to tie to company objectives
Supplier Category/Brand Measures for each category - should be aligned
to suppliers customers
Joint Measures - greater buyin with business partners
3. Capabilities Measures
The ECR Scorecard (templates for scoring the level of ECR capability)
The objective of the ECR scorecard is to drive progress in performance
between trading partners
23
Collaborative Relationships
Definition:
Collaborative Relationships are the glue which binds all components of
category management together
Traditionally some buyer-seller relationships have been adversarial, but

under category Management the relationship must undergo a fundamental
change
Objective:
To create open and trusting relationships which harnesses unique
contributions - often too much time is spent on how to split the pie rather
than grow the pie!
TRUST, HONESTY, OPENNESS, INFORMATION SHARING are all common
elements of a Partnership
24
Principles of Collaborative Relationships

The consumer is the common focus - THE FINAL ARBITAR OF SUCCESS
Mutually agreed objectives, strategies, tactics and performance measures
Rewards support co-operating business goals
Relationships and trust are earned not given

Information sharing is essential
Neither trading partner has all the expertise for Category Management to
succeed
Retailers, suppliers and consumers win (the triple win)
Openness to change traditional attitudes and relationships
Leadership, Leadership, Leadership
25
Enabling Technologies
Definition
Enabling Technologies are the collaborative systems used by Retailer and
Supplier to facilitate the flow of goods, information and payment
Objective
To improve the efficiency of reporting, decision making and communication including activities such as forecasting, replenishment and data exchange
To assure timely and accurate data acquisition, organisation and analysis

with the intention of developing common data definitions and standards
26
Enabling Technologies are required to effectively

manage a category
Implementing category management requires a significant investment in
information technology in the Retailer, as well as the Supplier organisation
Business processes are complex
Data sources are fragmented and often incompatible

The necessary analeptics are significant and can require a lot of data
Systems architecture consists of the following:
1. Application software - To develop category business plans with analytical
capabilities
2. Multi-Dimensional Data Servers - Databases with both internal and
external data needed to analyse and run the category on a regular basis
3. Data Warehouses - Detailed unaggregated item and store level data for
executing and monitoring category performance and for integration into
product supply and marketing applications
27
Organizational Capability
Definition
Organizational capabilities refers to the skills and composition of the
category teams
Under traditional conditions, capabilities were limited to the purchasing

manager and account manager - under a category management structure
greater skills and capabilities are required
Objective
To create greater collaboration and communicate between Retailer and
Supplier
To leverage the expertise of a cross functional group as the environment
under category management becomes increasingly complex
28
Category management requires a new kind of

Organizational Capability
Joint measurement and management of a category is usually new work for
suppliers and retailers
It is a move away from traditional buying and selling skills
Reorganisations are often required in suppliers promotion, pricing and

merchandise planning groups
Retailers often need to revamp conventional buying/merchandising
departments and organise around category processes
There are significant changes in roles and responsibilities for both the
supplier and retailer
29
Store Execution & Maintenance

Store Execution and Maintenance is the hardest part of category
management requiring the most discipline and co-ordination of any of
its components
Category management has often focused on planning and not on store
execution
Fundamental principles must be in place to enable the effective store
execution of category management
Participation of field personnel (store managers, district managers) is key
to lend expertise and input
Field personnel must become fully educated on the process
Clearly defined and detailed processes should be developed to guide the
consistent execution of category management principles and tactics
30
Business Strategy
Top management commitment and leadership
a strong message needs to be sent from the top
resources need to be redistributed
a cultural change or shift is often required to manage categories
Retailers need to shift from buying strategies and managing aisles to

categories
Suppliers need to shift from selling tactics and brand focus to a

category orientation
Corporate Strategies and linkages to Category Strategies
31
a strategic framework is necessary
A robust corporate strategy includes: a mission statement, financial

goals and strategies for marketing, product supply and other
functional areas
Business Process
CATEGORY DEFINITION
CATEGORY REVIEW
CATEGORY ROLE
CATEGORY ASSESSMENT
CATEGORY SCORECARD
Structured
Measurable activities
Specific outputs
Blue print for action
Consumer Focus
CATEGORY STRATEGIES
CATEGORY TACTICS
PLAN IMPLEMENTATION
32
Category Management consists of

an 8 Step Process
3. The Evolution of best
practice Category
Management
The Evolution of Best Practice Category Management

1. Began approximately 12 years ago in the USA
2. Invented by manufacturers (mostly P&G) as a way of getting
strategic leverage in key customers
3. Pioneered by Partnering Group and Roland Berger

4. Quickly seen as fundamental to ECR - the Demand side process
which could unlock supply side opportunities
5. Initially process-driven, but with ECR increasingly focused on
capabilities
(example: PwC Global Scorecard as a tool to assess a
companys ECR capabilities)
34
Category Management/Demand Management as a vital

component of ECR initiatives
35
The components of Category Management are:

Demand Strategy & Capabilities
developing the capabilities that are needed for joint category working,
working together to create category strategy and plan
Optimise Assortment
shaping the best assortment and assortment layout to meet consumer

needs, stimulate demand and increase profitability
Optimise Promotions
planning and executing promotions that stimulate maximum sales and

profitability, ensuring promotional execution is efficient
Optimise New Product Introductions
ensuring that products are developed for unmet consumer needs,

maximising impact of NPI launches, ensuring NPI launches are
executed efficiently
Consumer Value Creation
managing consumer data to identify new or more targeted selling

opportunities.
36
Industry Standard Best Practice is an 8 Step Category

Management Process
What is the business unit?
How is it structured?
Category Definition
Category Review
Category Role
Category Assessment
Category Scorecard
Category Strategy
Category Tactics
Plan Implementation
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How important is the category?

What is its strategic purpose within the store?
What are the consumer dynamics?
What is the current situation in the market?
What are the product supply opportunities?
What is the current performance?
What will the strategies & tactics achieve?
What are the optimal product supply strategies?
What are the sustainable marketing strategies?
What is appropriate product variety?
What are the strategic price gaps?
What is the timely & productive promotion plan?
How should the product be presented in the store?
What is the action plan, in what priority?
Who is responsible for implementation?
When are the progress reviews?
Each of the 8 steps is documented in detail

Example - Step 6 Category Tactics
Assortment: Which assortment answers best to the needs of the
consumer? What is appropriate product variety?
Promotions: Which promotions have the best opportunity to drive
category sales and profit? How can this be measured?
New Product Introductions: What unmet consumer needs exist? How
can the success rate of NPIs be improved? How can the efficiency of
NPIs be increased?
Pricing: What are the strategic price gaps versus different brands and
versus private labels? Does pricing reflect the retailers marketing
strategy?
Shelving: How should the assortment be merchandised to stimulate
maximum consumer uptake? How to position brands within the
category? Where to position the category within the store?
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The next level of process detail is defined

- for example: Optimise Assortment
39
Step 1
Market Coverage
Step 2
Deletion Validation
Step 3
Retention Validation
Step 4
Addition Validation
Step 5
Assortment Finalisation
Step 6
Assortment Quantification
And to support the detailed process steps, tools and

templates are specified.
Category Purpose
DESTINATION
PREFFERED
OCCASIONAL /REWARD
CONVENIENCE
40
Market Coverage Guideline

Very High (90% +) in all major segments
So can claim to offer substantial customer choice to meet all
customer needs
High (80% +) in most major segments

Medium (66% +) in smaller segments
Aim for virtually all customers to find several acceptable choices
Medium (66% +) in major segments plus

Choice (33% +) in smaller segments
Limited offering of popular produuct lines, meeting broad basic

needs of the average customer
Focus on brands / types with a high penetration and profit
potential
Level of
Choice
Very Broad
Broad
Average
Narrow
Best Practice Organisation is more loosely defined as a

set of principles
Requires cross functional working both within the company and
between companies
The shape of the supplier/retailer relationship needs to change
from single point of control (buyer/seller) to multiple relationships
in a team
Personal and category performance measures and rewards
need to be re-aligned from narrow functional criteria to measures
which focus on the category's profitability.
Relationships must exist at all levels of the organisations - from
strategy to operation
41
These principles will impact all aspects of the

organisation performance model
42
And have widespread impact on how people need to

work
Characteristics of Traditional
Organizations:
Organization focused against internal
objectives
Characteristics of Category
Management Based Organizations:
Total systems management
Objectives often functional
Performance measures internal and

external
Multiple layers (pyramid)
More autonomy, authority at local level
Decisions top down
Flatter organization
Tactical vs. strategic focus
Process driven
Rigid, reapplied structures
Flexible short and long term
Performance measures narrow and

internal only
Responsive
Cross-functional collaboration
Continuous improvement, renewal
43
Enabling technology was assumed to be the foundation

for Best Practice Category Management
Examples of data
Examples of activities
POS data
Share performance monitoring

by category, segment, brand,
product and SKU
Shelf stock data
Loyalty Card Data

Panel Data
Ad hoc market research.
44
Understand shopper
behaviour in store
Assess impact of promotions
and extra feature space in
store
But the development of enabling technology best

practice has seen no killer application
Several attempts to automate the 8-step process (e.g. the now
defunct Catman-Do!, the current Interactive Edge as yet unproved)
Development of a myriad of specialist applications for point
solutions (see http:www.rmdp.co.uk)
Development into tools to facilitate collaboration through workflow
often within ERP systems (e.g. Manugistics promotion planning
workflow)
Recognition of the need to broaden functionality from providers of
retail systems (e.g. Marketmax, Retek, JDA)
Partnering with best of breed niche vendors (e.g. Spaceman) by
the broader based players
The potential to access retail functionality in CPG clients from some
providers of ERP systems (e.g. SAP R/3)
45
4. To what extent has best

practice been adopted?
To what extent has best practice been implemented?

- the qualitative overview
Most companies have done at least one Category Plan with at least
one customer - majority have broadly followed the 8-step process
Many significant category performance improvements have been
achieved
Most manufacturers recognise the need for Category Managers and

have re-aligned their organisation accordingly. Many different models
exist from minor change to complete restructuring.
Few retailers have substantially re-organised around categories but
many have boosted skill levels to meet the challenges.
Few Manufacturers or retailers have invested in enabling technology
behind Category Management specifically.
Source: PwC global insight - qualitative
47
The average overall ECR score for manufacturers is 632

(versus a maximum score of 1600).
All ECR concepts
Note: Non-verified results, based on own input from manufacturers
48
But demand side concepts are much less developed

(score: 266 out of 600)
Note: Big differences can be found between regions and companies.
49
Enablers show a very poor maturity profile with a score

of 91 (out of 250),
50
as wel as Integrators with a score of 53 (out of 200).
51
Both manufacturers and retailers feel that Category

Management has not achieved as much as promised
Doubts about financial benefits for manufacturers
Concerns over lengthy and resource-hungry process from both
Difficulties in sharing and analysing data due to lack of
development and adoption of enabling technologies
Awareness of low levels of implementation in store compared
with amount of plans produced
52
To achieve more detailed feedback, PwC did a survey

on (joint) Category Management in Europe and USA
List of Participants:
Retailers
Brokers (USA)
Suppliers
Albert Heijn
Cub Foods
Fleming
Giant Foods (MD)
HEB
Kroger
Schnucks
Supervalu
Christal
Coca Cola
Energizer
Procter & gamble
General Mills
Hunt-Wesson
Kraft
Nestl
Pillsbury
SC Johnson
Adderton
Kimberley Clark
Mlnlycke
Unilever
CMI
Carey, Ahren &
Raynesford
Morris Alpern
Source
Delhaize
ICA
J. Sainsbury
Tesco
Survey 1998
53
This survey articulated specific concerns with the

8-step process
Strategic direction is not always clearly defined before
starting with the Category Management process
Execution of the process appears to be difficult
Implementation at retail store level
Risk of analysisparalysis
Current execution lacks consumer focus (consumer
shopper value needs more attention)
Current practices hinder potential benefits; it lacks
performance measurement
Current approaches impede execution
54
Resources, objectivity and experience with category

management are important partner selection criteria
Partner Selection Criteria
Mentioned as main criterium

Total mentions by survey
55
Long lead times: After 5 years experience, duration of

best practice assessment is still 3 months.
1.
1.
The current Best Practice approach is not sufficiently productive

investments are not yet paying off.
56
Agreed improvements are not properly implemented due

to the lack of retailer control and lack of proper training.
Main Barriers to Success
1.
Frustrations & Conflicts
1.
Partners have quite often made concessions to the best practice approach and are
tempted to take shortcuts in the process.
57
As the best practice for category management is too

elaborate, companies do the process less often.
Adaptations made to best practice processes
1.
1.
Data analysis / decision making counts for 62 % of the total time needed for
assessment. PwC believes that this can be reduced by 50% once computerized.
58
5. Case studies and

Results
Case study Procter & Gamble

Process
All steps of the process more or less being followed by P&G for all brands and
NPIs (on a GBU-level) being detailed to customer plans by local category
managers, in cooperation with key customers
Full customer cooperation started for the biggest categories/brands, and with
key customers (especially added value chains, not Aldi for example).
Organization
Cross-functional customer teams established around the key customers, both

on global and local levels. Significant co-location at customer sites
IT enablers
P&G developed CM Fact an innovative software application (started from high

level in Cincinatti, translated to Europe and other regions)
In July 2000, Wincor Nixdorf acquired a non-exclusive license to upgrade and
commercialize CM Fact. This upgraded version will be named CM Plus.
Examples
P&G category captain at Ahold on feminine hygiene, diapers, and detergents.
UK test market for Sunny Delight together with retail partners => build the
underdeveloped fruit juice category
Monoprix and Pampers/Ariel => combined advertising and promotions
leveraging the convenience and quality images of the three brands
Procter & Gamble and Watsons the Chemist category management pilot on
diapers (Hongkong)
60
Case study Unilever

Process
Use 8 step process extensively but not uniformly by category, company or

country. Will also change extent to which original full process is used.
Merger with Best Foods in 2000 will have increased Category Management
activity
Organization
Re-organised in 2000 along Category structure globally.

Category boards are key decision makers. Categories are hosted in lead
countries. Brand marketing (strategic) and executional marketing plus sales
report into Category Board.
IT enablers
Have not developed or bought specific Category Management enabling

technology.
Are implementing SAP.
Examples
Van den Bergh & Albert Heijn

Birds-eye & several retailers in UK
Plus probably others from ECR database
61
Case study Colgate

Process
Early adopters of Category Management.

Use 8-step process but have developed their own CatMan Lite version based
on developing hypotheses to identify opportunities. This process has been in
used for some time and is widely applied.
Organization
Europe (and probably US) has category structure where sales and marketing
work in Category Teams internally as well as with customer.
All decision making is in category teams including allocation of investment
between sales and marketing activity.
IT enablers
No process support tool.

But do have niche systems for promotion evaluation (Taylor Nelson), price
elasticity (bespoke), and merchandising (intactix from JDA)
Examples
62
Not known
Case study Kraft

Process
Full collaboration only with some key customers
Organization
Established local, customer focused account teams, with category management

part of the account team.
Multifunctional account teams for key customers.
Different organizations in US vs. Europe
IT enablers
Kraft developed the Kraft Plus category management program, including a 3Step Category Builder, a streamlined CM approach, and the Efficient Promotion
Analyzer, helping retailers identify the effective and successful elements of instore promotions.
Kraft developed a consumer information system to help retailers getting to know
their shoppers: Consumer View of Food and Consumer View of Assortment
(source: internet)
Examples
1999: retailers using the Kraft Plus tools showed a +5% sales increase on Kraft
brands (versus +2% increase without the system). Category sales increase was
+4% with Kraft Plus, versus +1% without.
UK: joint category management with Tesco
63
Some results of Category Management:

French retailer /
biscuit
manufacturer
UK retailer / hot
beverage
manufacturer
UK retailer /
consumer goods
manufacturer
Procter & Gamble /
Watsons
(Hong Kong)
64
Joint range review

Joint training
Joint layout testing
Category turnover + 11.5% / Profit + 5%

Joint customer needs review
Joint new layouts reflecting customer needs
Category turnover + 10.5% / Profit + 11.2%

Joint product development
Joint promotions activity
Joint review of store operations
Category turnover + 28% / Profit + 18.2%

Joint product development
Joint customer needs review
Joint review of store operations and images
Category turnover + 16% / Profit + 9%
6. Conclusions and future

direction
In summary, what has Category Management achieved?

A common basis (the category) based on the consumer for retailers
and manufacturers to use to plan, analyse, implement and measure no more talking at cross purposes.
A shared acceptance that the consumer is the arbiter of category
success.
Significant improvement in cross-functional working
Created the relationships which have facilitated supply-side process
efficiency - especially in forecasting.
66
What is the future for Category Management?

Streamlined Category Management planning and execution will
become part of how we do business but will focus on
opportunity development through shared insight.
The pace of Collaborative working will significantly increase as
CPFR systems aid workflow for promotions and new product
introductions. (Many pilots now in progress)
Increasing emphasis will be needed on Customer Value
Management - based on insight available from loyalty cards
offers will need to be tailored by segment or individual and
potentially based on total solutions (product and service) via
multiple channels
67
7. Metodology
Metodology
CATEGORY DEFINITION
CATEGORY REVIEW
CATEGORY ROLE
Category Management
consists of an 8 Step
Process
CATEGORY ASSESSMENT
Structured
CATEGORY SCORECARD
Measurable activities
CATEGORY STRATEGIES
Specific outputs
Blue print for action
CATEGORY TACTICS
PLAN IMPLEMENTATION
69
Consumer Focus
I. Category Definition
70
Purpose and Steps
Consumer Needs
Category Decision Tree
Category Definition
CATEGORY DEFINITION
CATEGORY REVIEW
CATEGORY ROLE
Key questions:
What is it?
What is its structure?
CATEGORY ASSESSMENT
CATEGORY SCORECARD
CATEGORY STRATEGIES
CATEGORY TACTICS
PLAN IMPLEMENTATION
71
Category Definition
Purpose:
Better align the retailer and supplier with the consumer
Better align the supplier with the retailer
Gain a new perspective on gaps and opportunities

Steps:
1. Understand the consumer needs the product satisfies
2. Determine the products that make up the category
3. Structure of the Category
Sub-Categories
Segments
Sub-Segments
SKUs
72
Step 1 - Understand the consumer needs the product

satisfies
Example: Soft Drinks
Primary
Needs
Secondary
Needs
Tertiary
Needs
Thirst
Quenching
Stimulation
Relaxation
Social
Convenience
Source: Booz, Allen Soft Drink Consumer Needs Study
73
Accompany
Food
Health
Remedy
Step 2 - Determine the products that make up the

category
Example: Dish Soap
SKU
SKU
SKU
SKU
1. Define the
consumer need...
Clean Dishes
2. What provides a
similar solution to
meet the need?
4. What does the
consumer see as
interrelate?
Automatic dish detergent, rinse aids,

scrubbers, paper plates, frozen dinners
Liquid soap,
scrubbers, dry racks,
dish towels
5. What does the

retailer see as
interrelated?
6. Is the information
measurable?
74
Liquid soap for dish

washers
3. What does
the consumer
see as
substitutable?
Light duty liquid soap, and

automatic dish detergent
Info from internal
systems - supplier
and retailer
The Category (SKU Grouping)
8. What is the group of

products that comprise
the Category?
Defining the products that make up a category can be narrow

or broad depending on target consumer and information
capabilities
There is no standard definition
Ultimately its the responsibility of the
retailer
Example: Snacks
The outcome is what to include and

what will not to include
All decisions should be driven from the
consumers perspective BUT remember
the category needs to feasible and
manageable
Narrow
75
Broad
Step 3 - Structure the category to reflect how consumers

make purchasing decisions
Category Decision Tree
SUB-SEGMENT
SEGMENT
SUB-SEGMENT
SUB-CATEGORY
SUB-SEGMENT
SEGMENT
SUB-SEGMENT
CATEGORY
SUB-SEGMENT
SEGMENT
SUB-SEGMENT
SUB-CATEGORY
SUB-SEGMENT
SEGMENT
SUB-SEGMENT
76
There are a number of ways to define the category and it can

change from retailer to retailer and based on the target
consumer
Example: Pet Food
Category
Sub-Category
Segments
Sub-Segments
Wet
Food
Kind of
Food
Dry
Cat Care
Health
Pet
Care
Dog Care
Type
of Pet
Need
of Pet
Accessories
Bird Care
Snacks
Treats/Rewards
Fish Care
77
Kind of
Reward
Toys
II. Category Role
78
Purpose and Steps
Four Types of Category Roles
Cross-Category Analysis
Qualitative Analysis
Category Role
CATEGORY DEFINITION
CATEGORY REVIEW
CATEGORY ROLE
CATEGORY ASSESSMENT
Key questions:
How important is the
category?
How to leverage the
importance?
CATEGORY SCORECARD
CATEGORY STRATEGIES
CATEGORY TACTICS
PLAN IMPLEMENTATION
79
Category Role
Purpose:
Assign a role to the category as it relates to retailer strategy and objectives
Ensures the category business plan is aligned with the overall corporate
goals and objectives
Establishes rationale for resources allocation
Steps:
1. Retailer sets initial category role
2. Conduct cross-category analysis and qualitative analysis to validate role
Consumer, Retailer, Market, Qualitative

3. Select the role for the category and ensure fit against corporate objectives
80
Step 1 - Retailer sets initial category role based on

contribution to overall performance
Niche Opportunities
Contribution
to Brand
Nice to Dos
Foundation products &
packages
Contribution to
Revenue & Profit
Must Dos
Core mix development
Contribution
to Volume
81
Products, packages and

services
Need to Dos
There are four main category roles based on ECR Best

Practices
1. Destination
A primary category for the retailer
to deliver superior value to the
shopper thus helping the retailer
position itself with its target
consumer
3. Convenience
A convenience category for the
retailer to deliver value to the onthe-go shopper thus positioning
the retailer as a one-stop shop
Source: The Partnering Group
82
2. Routine / Preferred
A routinely purchased category for
the retailer to deliver consistent
value to the shopper thus
becoming the preferred retailer,
but not the only one
4. Occasional / Seasonal
An occasionally purchased
category often containing seasonal
products for the retailer to deliver
superior value to the shopper at
key points in time
Role 1 - Destination
To be the primary retailer for these

products to the target consumer
To help define the profile of the retailer in
the eyes of the consumer
To deliver a consistently superior value
to the target consumer
To lead all retailer categories in the areas
of turnover, market share, consumer
satisfaction, service level and operating
expense management
83
Role 2 - Routine / Preferred
To be the preferred provider of these

products to the target consumer
To help build the target consumers

image of the retailer
To deliver consistent, competitive value
To play a primary role in delivering profit,

cash flow and ROA (Return On Assets)
84
Role 3 - Convenience
To help reinforce the target consumers

image of the retailer as the place for onestop shopping
To deliver good, everyday value to the

target consumer
To play an important role in the area of
profit generation and margin
enhancement
85
Role 4 - Occasional/ Seasonal
To be a major provider or these products

To help reinforce the target consumers
image of the retailer
To deliver frequent, competitive value to
the target consumer
To play a secondary role in delivering
profit, cash flow and ROA
86
Summary of Category Roles

Category Role
Destination
Routine /
Preferred
Convenience
Occasional /
Seasonal
87
Objectives
Characteristics
Examples
High volume
Soft Drinks
Broad reach
Tobacco
High purchase frequency
Baby Care
Differentiates retailer from

competitor
Fresh Fruit
To be the preferred category supplier and

help develop the retailer as the retailer of
choice by delivering competitive target
consumer value
High volume
Toilet Paper
Broad reach
Laundry
Snacks
To be a category supplier and help

reinforce the retailer as a full service
store of choice by delivering frequent,
competitive target consumer value
Average volume
Baked goods
Low / Medium reach
Magazines / Newspaper
Low purchase frequency
Batteries
To be a major category supplier and help

reinforce the retailer of choice by
delivering frequent, competitive target
consumer value at the optimal time
Heavy fluctuation in
volume by season
Sun tan Lotion
Christmas Cards
Average reach
Moon Cakes
Low / Moderate purchase

frequency

in season
To be the primary category supplier

and help define the retailer as the
retailer of choice by delivering
superior target consumer value
Step 2 - Conduct Cross-Category Analysis and

Qualitative Analysis to validate category role
To validate category role, key questions must be answered:
How important is the category to the target consumer?
How important is the category to the retailer?
Can the category be used by the retailer as a point of differentiation?

What is the outlook for the category in the market place?
There are 4 different analysis techniques to validate category role:
Consumer-based evaluation
Retailer-based evaluation
Market-based evaluation
Qualitative questions
88
Cross-Category Analysis - Consumer-based Evaluation

How important is the category to the target consumer?
Example: Target Consumer: +3 Households
(% of category turnover)
70,00%
+3 Households
buy 42.8% market
volume
60,00%
50,00%
40,00%
30,00%
20,00%
10,00%
0,00%
Snacks
Juices
Fresh
Bread
89
Cookies
Bath
Tissue
Bottled
Water
Beer
Cross-Category Analysis - Retailer-based Evaluation

How important (SIZE) is the category to the retailer?
Example: Retailer Sales ($M) by Category
10,00
9,00
8,00
7,00
6,00
5,00
4,00
3,00
2,00
1,00
0,00
Soft
Drinks
Milk
Beer
90
Coffee
Candy
Toilet
Tissue
Sine
Paper
Towels
Cross-Category Analysis - Retailer-based Evaluation

How important (MARGIN) is the category to the retailer?
Example: Retailer Gross Margin (%) by Category
32%
30%
28%
26%
24%
Retailers Overall
Gross Margin 23%
22%
20%
18%
16%
14%
12%
Beer
Candy
Cookies
91
Pet
Care
Bottled
Water
Coffee
Tea
Cross-Category Analysis - Market-based Evaluation

What is the outlook for the category in the market?
Example: Projected 2 Year Market Growth (% change)
20,00%
15,00%
10,00%
Average growth
rate for all
categories is 5%
5,00%
0,00%
-5,00%
Snacks
Cookies
Juices
92
Bottled
Water
Fresh
Bread
Bath
Tissue
Tea
Qualitative Analysis
Consumer-based
YES
Are the category sales affected by major lifestyle changes?

Does the category have a high level of personal importance?
Is the category likely to grow in importance in the near future?
Is there a significant consequence when the category is not used?
Retailer-based
Does this category provide a source of retailer differentiation?

Can the category help build store loyalty?
Can the primary demand for the category expand easily?
Does the category leverage the retailers strengths?
Does the category align with the Corporate strategies?
NO
Market-based
Has competition underestimated the importance of the category?

Has competition overestimated the importance of the category?
Supplier-based
Are the suppliers in the category capable of supporting a particular role?

Does a particular category role leverage the suppliers resources?
93
Step 3 - Select the role for the category and ensure fit
against corporate objectives and resource allocation
Retailer Mission
Retailer Marketing Strategy
Category
Role
Consumer Positioning within Market

Retailers Competitive Positioning
Retailers Relationship Strategy
Retailers Tactical Marketing Elements
Key questions include:

Will the retailer support the role?
Will the supplier support the role?

Will resources be allocated according the category role?
94
IIIa. Category Assessment - Data Assessment Elements
95
Purpose and Steps
The Role of Retailer & Supplier
Developing a Consumer Understanding
Category Performance in the Market
Category Assessment
CATEGORY DEFINITION
CATEGORY REVIEW
CATEGORY ROLE
CATEGORY ASSESSMENT
Key questions:
How is the category doing?
Versus Potential?
Versus Roles?
CATEGORY SCORECARD
CATEGORY STRATEGIES
CATEGORY TACTICS
PLAN IMPLEMENTATION
96
Category Assessment
Purpose:
Identify the gap between current and potential performance
Assess current performance of the category
Steps:
1. Determine what information is needed and the level of information required
and acquire the information
2. Analyze the information and capture the observations and implications
3. Make conclusions and prioritize the opportunities
97
Best practices for effective category assessment

BEST PRACTICES FOR EFFECTIVE CATEGORY ASSESSEMENT
A collaborative process between the retailer and the supplier

Standard templates to guide the assessment process in a logical,
productive manner
Market research with input from additional resources like consumer
insight teams, 3rd party data providers, IT and Finance teams
Clear assignment of responsibilities between involved parties
Information and technology tools
A willingness to share the necessary data between trading partners
Be Fast & Flexible
98
Do Not Get Trapped

In Templates
However, beware of Analysis Paralysis and remember that

the aim is to convert information into intelligence in order to
make decisions
Data
Information
Analysis
So What?
Intelligence
99
Make conclusions
and prioritize based
on intelligence.
The Category Assessment process looks at 4 groups of

variables and 5 critical performance areas to identify gaps
and opportunities
Data Assessment Elements
Consumer
Supplier
Retailer
Market
Opportunity Gap Analysis
Assortment
Pricing
Promotion
Space
Analysis of Critical Tactical Areas

100
Product Supply
Step 1 - Determine what information is needed and the

level of information required and acquire the information
Data Assessment Elements
MARKET DATA
Market Share &

Opportunity Gaps
CONSUMER DATA
Buyer Profile &
Purchase Behavior
Category
Sub-Category
Segment
Brand
SKU
SUPPLIER DATA
101
Category Share &

Efficiency
RETAILER DATA
Contribution &
Productivity
Examples of Retailer Data

Scan data
Inventory measures
time of sale
days of supply
items purchased
combination of items
purchased - bundling
retail pricing
inventory turns
RETAILER DATA
price promotions
Out of stock data or leakage

if tracked
Retail price strategy

EDLP
price promotions
premium pricing
loss leader
102
Examples of Market Data

Opportunity Gap Analysis
Fair Share Analysis
Market Sales Trends
Retailer Sales Trends

MARKET DATA
103
Competitive Strategies
Share of Market
Retailer Category
Development
Retailer Market Shares
Examples of Consumer Data

Consumer
Demographics
Profile of Target Consumers &

Shoppers
Consumer Attitudes
CONSUMER DATA
Shopping Basket
Analysis
Price / Display /
Promotions Elasticity
Cross Category Interaction

and Relationships
104
Store Loyalty / Interaction

in the Category
Examples of Supplier Data

Target consumer - demographics,
psycho-graphics, trends, etc
Category Share - brand,

segment, package, etc
SUPPLIER DATA
Brand positioning
Promotions data
105
Efficiency
Ex-factory sales data shipped goods

Pricing structure
Step 2 - Analyze the information and capture the

observations and implications
There are a number of analysis tools used to interpret the four sources of
data:
106
Target Consumer Profiling - Shopper vs. Consumer
Category Performance - Sales Trend Analysis
Category Performance - Opportunity Gap Analysis
Quadrant Analysis
Retail Profitability Analysis
+ many more depending on level of data availability
Target Consumer Profiling - Supplier and Retailers have

differing roles in defining Consumer Category Needs
Role of Supplier
Focus on
understanding the
actual consumer
Knowledge of Brand
107
Consumer category needs:
Product
development
Branded / Own label
Range / Layout
Promotion
Role of Retailer
Focus on
understanding the
actual shopper
Knowledge of Store
Suppliers have a responsibility to provide honest input to the

category assessment process - both when it helps you and
hurts you
For CPG suppliers analyzing category data:
Do you swear to
Tell the Truth,
The Whole Truth,
And Nothing But the Truth?
108
Target Consumer Profiling - Developing a consumer

understanding
Consumers are the ultimate arbiter of

success - a clear understanding of
the consumer decision process is
critical to success
109
How to define the target consumer?
Define the market

Where are the customers?
Who do I have?
Who do I not have?
(loyals / core)
(non-loyals / occasional)
Current and Future Opportunity?
Current and Future Opportunity?
110
Defining the target consumer provides focus to the

category management process
Provide focus for corporate, department and category strategies
define loyal consumers
understand how to maintain and expand the consumer base
understand how to meet the consumer needs
Focus on loyal consumers that are more profitable
higher expenditure / trip
higher expenditures / year
lower promoted purchase
referrals
large size purchases
Allocate assets effectively
111
assortment is more efficient as its based on target consumer
reduce inventory costs
maximize advertising spend
Opportunity Gap Analysis - %

Opportunity Gap Analysis shows the variance between the retailers share
of a category (currency or units) and the retailers share of the total market
All Commodity Volume (ACV)
It is used to understand if the Retailer has a Opportunity Gap or Advantage
vs. the market within a particular category
Retailers Share of
Market (ACV%)
Retailers Share
of Category (%)
Note: ACV is the total retail sales in the market for all categories
112
% Opportunity
Gap OR
Opportunity
Advantage
Opportunity Gap Analysis - Expressed in Currency

An Opportunity Gap or Advantage has more meaning when the percentage
is expressed in sales currency (ie. $)
Depending on the positioning of the retailer and its target consumer /
shopper, certain categories with have an advantage or gap target
For example, a grocer that positions itself as the fresh food grocer will
want to have an Opportunity Advantage in produce
% Opportunity
Gap OR
Opportunity
Advantage
Value of a Share
Point ($)
Category Sales
100
Note: ACV is the total retail sales in the market for all categories
113
Advantage OR
Gap in Currency
IIIb. Category Assessment - Data Analysis Techniques
114
Quadrant Analysis
Retail Profit Analysis
Decision Making without all the information
Category Assessment - Data Analysis Techniques

There are many tools and techniques used to assess a category
Two frequently used analysis tools include:
Quadrant Analysis
Retail Profitability Analysis
115
Quadrant Analysis - Background

Developed in the 1970s, quadrant analysis is now used in Category
Management as a tool to position categories and make strategic decisions
It presents the current situation in a simple and visual manner allowing you
to assess your tactical executions
116
Quadrant Analysis measures 5 variables at a given

moment in time
1 X-axis represents one
performance variable
3 Mid-point of X-axis gives a

standard performance of X
variable
4 Mid-point of Y-axis gives a

standard performance of Y
variable
117
5 size of the circle

indicated the
relative
importance of
what is being
measured
2 Y-axis represents one

performance variable
Share / Growth Quadrant Analysis - Example

Market Share %
Sleepers
Winners
Canned juices
Canned vegetables
Canned fish
Pet food
Canned fruits
Market Growth %
Coffee
Questionables
Opportunity Gaps
Baby food
Cereal
Tea
Soft drinks
118
Share / Growth Decision Matrix

Sleepers
Market Share %
Winners
Review product mix vs. market
Continue current program
Weed out slow movers
Increase promotional support
Bring in faster moving items
Review space management to ensure minimal out-of-stock
Review space management - give fast movers adequate space
Add good performing items not carried, but available
Under-promote compared to market
Review pricing and gross margins to see if selected
Tie in promotions with winners

Increase gross margin
reductions can enhance image and

increase growth and share
Questionables
Market Growth %
Opportunity Gaps
Review assortment vs. market
Is category and / or fast movers under spaced?
Delete poorest performing items
Review pricing mix - is pricing of key items too high vs. the
market?
Can prices be raised?

Is category under-promoted vs. market?
Are category and key items under-promoted vs. market?

Review product mix - is mix wrong for target consumer?
Any new faster moving items not bing carried?
Tie-in-promotions with higher margin, expandable consumption
items
119
Sleepers
Review product mix vs. market
Weed out slow movers
Bring in faster moving items
Review space management - give fast movers
adequate space
Under-promote compared to market
Tie in promotions with winners
Increase gross margin
120
Winners
Continue current program
Increase promotional support
Review space management to ensure
minimal out-of-stock
Add good performing items not carried, but
available
Review pricing and gross margins to see if
selected reductions can enhance image

and increase growth and share
121
Opportunity Gaps
Is category and / or fast movers under
spaced?
Review pricing mix - is pricing of key items too
high vs. the market?

Are category and key items under-promoted
vs. market?
Review product mix - is mix wrong for target
consumer?
Any new faster moving items not bing
carried?
Tie-in-promotions with higher margin,
expandable consumption items
122
Questionables
Review assortment vs. market
Delete poorest performing items
Can prices be raised?
Is category under-promoted vs. market?
123
Quadrant Analysis Variations

Elements that can be measured
include:
categories
suppliers
packages
stores
retailers
Axis can represent:
market share vs. market growth
Bht. Change vs. unit or case
change
turns vs. gross margin %
% of Bht. Sales vs. gross
margin %
124
Size of the circle can represent:
Bht. Sales share

equivalent case sales share
Mid-points can represent:
budget levels vs. last year levels
current performance vs. zero
Retail Profitability Analysis - Performance Metrics

Sales
transaction
Gross Profit Margin
average check
Adjusted Gross Profit Margin
shopper base
Turns
purchase frequency
CTM (Contribution to Margin)
purchase incidence
Gross Profit per Case
Cost of Goods Sold

Profit
Gross Profit
Adjusted Gross Profit
Net Profit
125
Margin
GMROI (Gross Margin Return on

Investment)
Definitions of Profit
Gross Profit
Net Profit
Level 2
Level 2
Sales Revenue
Net Profit
Level 1
- Invoice Cost
Level 1
Sales Revenue
Gross Profit
Sales Revenue
- Fixed & Variable

Assets Employed
- Invoice Cost
+ Billbacks
- Acquisition Cost
X Hurdle Rate*
Gross Profit
Adjusted
Gross Profit
+ Billbacks
Economic Value
Add (EVA)
- Relevant Operating
Costs (ABC)
Net Profit
*Hurdle Rate is the expected rate of

return on assets employed
126
Level 1 Gross Profit - The variables that impact Sales

Revenue
Sales
Number of
sales in a
given time
Number of
Shoppers
buying the
category
127
Cost of Goods
Sold
Transactions
Shopper Base
Average
Check
Purchase
Frequency
Gross Profit
Average
purchasing
amount of
receipt (Bht.)
or average
sale (Bht.)
Number of times
each shopper on
average purchases
the category in a
given time
Level 2 Adjusted Gross Profit - Closer to True Profitability

Sales
Cost of Goods
Sold
Eg. Rebates, marketing funds, etc.
128
Gross Profit
Manufacturer
Bill-backs
Adjusted
Gross Profit
Profit Margin
Profit Margin is the ratio of Gross Profit (or Adjusted Gross Profit) to sales
revenue
It is a used to manage profitability across products and categories as a
proxy for indicator of profit
However, it is important not to look at margins in isolation as high margin
items with low sales can contribute very little to overall profitability - you
dont bank a margin, you bank a profit
Gross or Adjusted Gross Profit

Sales Revenue
129
Profit
Margin
Contribution to Margin
Contribution to margin is the impact of each individual unit (brand, segment,
package, SKU, etc) on the overall Gross Profitability
It is a good measure of the relative importance of that product on Category
profitability
It can also be used in cross category analysis to understand which
categories are the greatest contributors to overall profitability
% Share of Retail Sales (currency)

X Gross Profit Margin
Contribution to Margin
130
Gross Margin Return on Investment - GMROI

GMROI is the amount of Gross Profit generated for each currency (Bht)
invested in inventory
It is an inventory performance measure and the higher the categorys
GMROI, the more likely the retailer will want to invest inventory in this
category
It is generally representative of a high turning product
Gross Profit Margin

(100% - Gross Profit Margin)
131
annual inventory turns
Conducting Retail Profit Analysis - Getting Started

Step 1:Define Parameters
Determine level of detail and time frame to be measured - ie. segment,
package, SKU. In the beginning, keep it simple and use segment or package.
Step 2:
Calculate Gross Profit
Calculate weighted average price and cost against volume sold. Be careful to
keep consistent units of measure - ie. unit, case, bottle, pack, etc.
Step 3:Calculate Adjusted Gross Profit
Determine and calculate billbacks attributed to sales - ie. marketing support,
rebates, etc.
Step 4:Calculate Net Profit
Determine and calculate costs attributed to sales - ie. transport, warehousing,
inventory costs, ABC, etc.
132
IV. Category Scorecard
133
Purpose and Steps
Setting Common Goals and Objectives
Creating a Balanced Scorecard
Category Scorecard
CATEGORY DEFINITION
CATEGORY REVIEW
CATEGORY ROLE
CATEGORY ASSESSMENT
CATEGORY SCORECARD
Key question:
What are our goals,
objectives?
CATEGORY STRATEGIES
CATEGORY TACTICS
PLAN IMPLEMENTATION
134
Category Scorecard
Purpose:
Establish specific business objectives for the category plan
Focus on the few key areas that drive business
Measure results against business objectives
Communicate common objectives and goals
Steps:
1. Define current scorecard measures
2. Identify additional scorecard measurements needed to achieve
a balanced scorecard
3.Complete the current scorecard measurements and develop
targets for desired scorecard.
135
Characteristics of a good category scorecard

Balanced architecture - measure should be internal and external, and
focused on both short and long term results.
Total system - measures should allow results from all phases of a
categorys performance - production, procurement, distribution and
sales.
Allow for comparison of performance over time - measures should
be able to tract actual results vs. forecasts, budgets and against results
of previous periods.
Timely, accurate, understandable measures - measures allow
managers to make good decisions and should impact their behavior.
Related to corporate strategy - category performance measure
should be aligned with broader company goals and strategies - should
be able to roll-up to higher level financial measures.
136
Setting common goals and objectives

CONSUMER
Category Market Share
Brand Market Share
Consumer Retention
Consumer Retention
Consumer Satisfaction
Consumer Satisfaction
Consumer Loyalty
Service Level
COMMON GOALS
Consumer Loyalty
Category turnover
Gross / Net Margin
RETAILER
Category turnover
To grow the size and

value of the category
SUPPLIER
Category turnover
Gross / Net Margin
Gross / Net Margin
Inventory turns
Inventory turns
Market basket size
Revenue / Transaction
Revenue / Transaction
Share of Category
Price Index
Index category growth to
New item time to store
137
Inventory turns
retailer growth
Step 1 - Define current scorecard measurements

Obtain current scorecard measurements. If there is no existing scorecard,
determine how performance is measured at various levels in the company.
Determine which performance measurements are performance indicators and
which are real scorecard elements.
Example:
Indicators
number of ads / year
ad payments
cash rebates
marketing funds
promotional funds
physical units
accounts payable
138
Scorecard
profit
equivalent units
Step 2 - Identify additional scorecard measurements

needed to achieve a balanced scorecard
A balanced scorecard looks at a performance measures in multiple
areas: the consumer, sales, profit and product supply
Elements of a balanced scorecard:
Examples include:
Consumer
Sales
Profit
transaction size
Bht. Sales
gross profit (Bht.) day of supply
purchase frequency % change
gross profit %
Product Supply
turns
penetration
equivalent unit sales % change
service level
market basket
% change
GMROI
inventory (Bht.)
share
net profit
share change
EVA
Scorecard elements should be the same for all categories

Ties to corporate strategies
Measurements must be obtainable and timely
139
Step 3 - Complete the current scorecard measurements and

develop targets for desired scorecard
Sample Balanced Scorecard
PROFIT
Consumer Service Level
Gross Profit (Bht)
Transaction Size
Gross Margin (%)
Gross Profit / m2 / week
SHARE
Category Share of Department
Category Share of Market
SALES
PRODUCT SUPPLY
Days of Supply
Inventory (Bht)
Category Sales (Bht)
Turns
Gowth
GMROI
Service Level
140
CONSUMER
Sales /
m2
/ week
V. Category Strategies
141
Purpose and Steps
Category Strategies
CATEGORY DEFINITION
CATEGORY REVIEW
CATEGORY ROLE
CATEGORY ASSESSMENT
CATEGORY SCORECARD
CATEGORY STRATEGIES
Key questions:
What is the business plan?
How will it achieve the role,
scorecard?
CATEGORY TACTICS
PLAN IMPLEMENTATION
142
Category Strategies
Purpose:
Assigns specific strategies to sub categories based on the retailers marketing
strategy, goals and category role
Determines how resources will be allocated
The strategies should cover how the retailer plans to purchase, distribute,
market and service the category
Steps:
1. Determine marketing and product supply strategy options
2. Review category assessment findings. Select appropriate strategies to deliver
category role and performance targets
3. Match sub categories and segments with strategies
4. Prioritize and validate strategies with analysis
143
The Characteristics of Category Strategies
Aligned to corporate and department Strategies
Category
Assessment
Validated through the Category Assessment
Address Consumer and Competitive Positioning
Do not Conflict
Set Clear Direction for Tactics Development
Category
Strategies
Category
Tactics
Why are strategies need?

Resource
Allocation
Money
Time
145
People
Step 1 - Determine Marketing Strategy Options

Traffic Building
focuses on drawing consumer traffic to the store and/or aisle and
category
Transaction Building
increasing the size and average transaction in category aisle or basket
Turf Defending
protects the retailers business in the category (aggressively positions)
Profit generation
use parts of the category to generate profit
Cash generation
use parts of the category to generate cash flow
Excitement creation
communicate sense of urgency or opportunity
Image Enhancing
communicate desired image to the consumer (price, service, quality,
variety)
146
Step 1 - Determine Product Supply Strategy Options

Each product supply strategy is a combination of efficient
replenishment techniques that improve the performance of the
following four replenishment processes:
Master Data Alignment - accurate exchange of product, price and
promotional information between supplier and retailer
Ordering - right deliveries triggered at right time
Physical distribution - physical product flow from plant to store.
Improving performance means higher service levels, lower stock
levels, lower handling
Finance - taking care of financial transactions between retailers and
suppliers eg. Error free invoices, timely and correct payment.
147
Step 2 - Selecting Category Strategies
Strategies must be linked to

category roles
Strategies are implied from
category performance measures
and targets
Certain characteristics of parts of
the category suggest specific
strategies
148
Marketing strategies implied by category roles
149
CATEGORY ROLE
CATEGORY MARKETING STRATEGIES
DESTINATION
TRAFFIC BUILDING
TURF DEFENDING
TRANSACTION BUILDING
EXCITEMENT CREATION
ROUTINE / PREFERRED
PROFIT GENERATION
CONVENIENCE
PROFIT GENERATING
IMAGE ENHANCING
OCCASIONAL / SEASONAL
TRAFFIC BUILDING
EXCITEMENT CREATION
PROFIT GENERATION
Link between category role and Efficient Replenishment

(EF) Techniques
Product
Supply
Strategies
IDEAL
ER - Techniques
Eg. Cross
Docking, ordering
and invoicing via
EDI, transport
pooling
ADVANCED
ER - Techniques
BASIC
ER-Techniques
150
Category Role
Convenience
Preferred
Seasonal/
Convenience
Seasonal/
Destination
Destination
Strategies implied by category performance measures
151
PERFROMANCE MEASURES
IMPLIED MARKETING STRATEGIES
GROW MARKET SHARE
TURF DEFENDING
TRAFFIC BUILDING
INCREASE TURNOVER
TURF DEFENDING
TRAFFIC BUILDING
IMPROVE GROSS MARGIN
PROFIT GENERATING
INCREASE ROI
CASH GENERATING
IMPROVE CONSUMER
SATISFACTION
EXCITEMENT CREATION
IMAGE ENHANCING
Matching strategies with product characteristics

CATEGORY STRATEGIES
CATEGORY STRATEGY CHARACTERISTICS
TRAFFIC BUILDING
HIGH SHARE, FREQUENTLY PURCHASED, HIGH % OF SALES
HIGHER RING-UP, IMPULSE PURCHASE
PROFIT CONTRIBUTION
HIGHER GROSS MARGIN, HIGHER TURNS
CASH GENERATING
HIGHER TURNS, FREQUENTLY PURCHASED
EXCITEMENT CREATING
IMPULSE, LIFESTYLE ORIENTED, SEASONAL
IMAGE CREATING
FREQUENTLY PURCHASED, HIGHLY PROMOTED, IMPULSE,

UNIQUE ITEMS, SEASONAL
TURF DEFENDING
USED TO DRAW TRADITIONAL CUSTOMER BASE
Step 3 - Matching Sub-Categories and Segments with

Strategies
CATEGORY
ROLES
CATEGORY
EXAMPLE
Category Strategies
Turf
Protecting
DESTINATION
TO BE THE PRIMARY CATEGORY
PROVIDER AND HELP DEFINE THE
RETAILER AS THE STORE OF CHOICE
BE DELIVERING CONSISTENT,
SUPERIOR TARGET CONSUMER VALUE.
Traffic
Building
REGULAR
AND
DIET
COLAS
SOFT
DRINKS
Image
Enhancing
Transaction
Building
Excitement
Creating
SPECIALT
Y
FLAVORS
NEW AGE
BEVERAG
E
ROUTINE
TO BE ONE OF THE PREFERRED
CATEGORY PROVIDERS AND HELP
DEVELOP THE RETAILER AS THE
STORE OF CHOICE BE DELIVERING
CONSISTENT, COMPETITIVE TARGET
CONSUMER VALUE.
OCCASIONAL/SEASONAL
TO BE A MAJOR CATEGORY PROVIDER
AND HELP REINFORCE THE RETAILER
AS THE STORE OF CHOICE BY
DELIVERING FREQUENT, COMPETITIVE
TARGET CONSUMER VALUE.
CONVENIENCE
TO BE A CATEGORY PROVIDER AND
HELP REINFORCE THE RETAILER AS
THE FULL SERVICE STORE OF CHOICE
BY DELIVERING GOOD TARGET
CONSUMER VALUE.
PET
CARE
DOG FOOD
PET
SUPPLIES
HARD
ALL
SURFACE
PURPOSE
CLEANERS CLEANERS
TUB/TILE
AND
FLOOR
WAX
SHOE
AND
LEATHER
CARE
POLISHE
S
AND
PROTECT
ANT
Category Stratogram - Soft Drinks category example

Category Role
Example
Strategies
Products
Turf
Protecting
12 packs
Traffic
Building
12 Pack Coke, Pepsi

2L Pepsi, Coke
Transaction
Building
Specialty Flavours
Excitement
Creating
New Age Beverages
Soft Drinks
Destination
154
24 Pack Cases
Commerative Packs
Step 4 - Validate and Prioritize Strategies with Analysis

The final step in developing strategies is to validate that the strategies
will deliver the desired financial results
Validation requires quantitative (SMART) objectives developed out of
sound analysis for the strategy to achieve otherwise the strategy should
not be included in the Category Plan
Validation should further ensure that the strategies are capable of
delivering increased benefits to the consumer, retailer and supplier
Additionally, strategies should be prioritized in order to balance quick
wins vs achievement of long term objectives
Prioritization should reflect timing and resource allocation
The analysis conducted in the Category Assessment step should be
referred to as support for validation and prioritization
155
VI. Category Tactics
156
Purpose and Steps
Assortment
Pricing
Promotion
Shelf Presentation
Category Tactics
CATEGORY DEFINITION
CATEGORY REVIEW
CATEGORY ROLE
CATEGORY ASSESSMENT
CATEGORY SCORECARD
CATEGORY STRATEGIES
CATEGORY TACTICS
Key questions:
What do we do to achieve
the strategy?
Who does what?
PLAN IMPLEMENTATION
157
Category Tactics
Purpose:
Formulates specific action for implementing demand and supply-side
strategies to achieve scorecard objective
Steps:
1. Determine tactical choices
2. Review assessments, observations and implications
3. Develop tactical ideas from strategic framework

4. Validate tactical ideas through qualitative and quantitative cost/benefit
analysis
5. Select tactics through strategic rankings
158
There are four key areas of Category Tactics
1. Assortment
2. Pricing
3. Promotion
4. Shelf Presentation
159
Assortment Tactics
Establishes the product variety offered to consumers as well as the criteria for
carrying or deleting SKUs
Can be an important source of retailer differentiation
Balances the needs of consumers with the need to avoid unnecessary
duplication and associated costs
Common and practical starting point for retailers and suppliers on Category
Management initiatives
Requires retailers to assess the profitability and consumer demand of SKUs
160
Category Management Business Process and Efficient

Assortment
An efficient assortment will be developed based on the following category
decisions:
A specific category definition and structure defined by consumer needs
A role describing the objective - or the desired state - of the category
in the retailer or supplier trading partner portfolios
Consumer, market, retailer and supplier performance evaluated via an
assessment
Specific business targets defined in a balanced set of category

performance measures
Clear strategies such as traffic building etc. that are developed to
ensure the category achieves the role and performance measure
targets
161
Assortment Tactical Options

Tactical Options
Decrease Assortment
Reduce the number of SKUs in the category,

sub-category, segment
Increase Assortment
Increase the number of SKUs in the category,

sub-category, segment
Swap
Alter the number of SKUs by replacing existing

SKUs with new SKUs
Uniform vs. Cluster
Tailor the assortment by store, store format, or

clusters of stores
Private Label
Develop, abandon or expand on private label

representation within the category, subcategory, segment, etc.
Maintain Assortment
Make no changes to current assortment
162
Description
Assortment Decision Criteria

Variety needs of consumer
Current variety image
Marketing strategy
Category Role and Strategies
Cost/Benefit of Different Variety
Levels
Product Acceptance/Deletion Criteria
Supplier Capabilities
163
There are many category management decisions that

affect assortment
Step in Category
Management Process
Category Structure
Category Role
Category Assessment
Category Performance
Measures
Category Strategies
164
Affect on Assortment
Correct sub categories and segments
Products, brands and packs included in each segment
Destination role: may imply broader assortment
Convenience role: may imply narrow assortment
A target consumer-oriented segment: may imply assortment additions
Unprofitable segment: may imply assortment deletions or additions
Aggressive turnover growth objective: may imply assortment additions
Transaction building strategy: may imply large sized assortment additions
Image enhancing strategy: may imply unique or upscale assortment

decisions
Profit generating: may imply adding profitable and/ or deleting unprofitable

products
Assortment Tactical Options based on Category Role

Category Role
Destination
Offer complete variety

best variety in market, sub-categories, segments, brands, SKUs
Routine / Preferred
Offer broad variety - competitive to market

sub-categories, major brands, major SKUs
Seasonal /
Occasional
Convenience
Offer timely variety
Offer select variety
165
sub-categories, segments (per unit of use)
only major brands and SKUs
Assortment Tactical Options based on Category

Strategies
Strategy
Traffic Building
Profit Generating
Turf Protecting
SKU Selection must include highest loyalty items for the largest
consumer
Stock top selling SKUs in each sub category or segment
Skew the assortment towards the following:
Higher priced SKUs
Higher margin SKUs
Private Label exposure
High promotional frequency on targeted SKUs to highlight

available and competitiveness within the market
Meet or beat targeted competitors historical feature pricing
Focus on media events
166
Examples of Assortment Analyses

Item ranking by sales, profit, GMROI, ROA etc
Market comparison
Variety index (% of products available)
Sales contribution index (% of market sales covered by items carried)
Sales/profit quadrant
New product checklist
Productivity indicators
Sales and profit per cubic feet
Product switching/ substituting (Consumer switching and substituting patterns
among brands and SKUs)
Loyalty rating (Consumer loyalty to a brand or SKU)
Product segmentation analysis
167
Six-Step Implementation Process for Efficient

Assortment
168
Step 1
Market Coverage
Step 2
Deletion Validation
Step 3
Retention Validation
Step 4
Addition Validation
Step 5
Assortment Finalisation
Step 6
Assortment Quantification
Efficient Assortment Process

Step 1 - Market Coverage
Determine a desired market coverage goal for each segment of the
category
EXAMPLE
What is the
appropriate
market
coverage for
the retailer?
?
?
TOTAL
MARKET
Products
TOTAL
MARKET
turnover
(Value)
Product 1
Product 2
Product 3
Product 4
Product 5
Product 6
Product 7
Product 8
Product 9
Product
10
18,000
15,600
11,600
7,000
2,315
2,300
2,000
1,600
500
250
29.4%
25.5%
18.9%
11.4%
3.8%
3.8%
3.2%
2.6%
0.9%
0.5%
29.4%
54.9%
73.8%
85.2%
89.0%
92.9%
96.0%
98.6%
99.5%
100%
61,165
100%
100%
Total
169
% share of
Product
Turnover
%
Cumulative
Turnover of
Products

Step 2 - Deletion Validation
Review all SKUs below the desired market coverage for each segment
for deletion
EXAMPLE
Products
to be
reviewed
for
deletion
(that are
stocked
by the
retailer)
TOTAL
MARKET
Products
TOTAL
MARKET
turnover
(Value)
% share of
Product
Turnover
Product 1
Product 2
Product 3
Product 4
Product 5
Product 6
Product 7
Product 8
Product 9
Product
10
18,000
15,600
11,600
7,000
2,315
2,300
2,000
1,600
500
250
29.4%
25.5%
18.9%
11.4%
3.8%
3.8%
3.2%
2.6%
0.9%
0.5%
29.4%
54.9%
73.8%
85.2%
89.0%
92.9%
96.0%
98.6%
99.5%
100%
61,165
100%
100%
Total
170
%
Cumulative
Turnover of
Products
Desired Market
Coverage

Step 3 - Retention Validation
Review SKUs that are typically 5 market coverage points above the
desired market coverage cut off based on the same consumer and retailer
performance measurements as mentioned in Step 2
EXAMPLE
Products
to be
reviewed
for
deletion
(that are
stocked
by the
retailer)
TOTAL
MARKET
Products
TOTAL
MARKET
turnover
(Value)
% of
Product
Turnover
Product 1
Product 2
Product 3
Product 4
Product 5
Product 6
Product 7
Product 8
Product 9
Product
10
18,000
15,600
11,600
7,000
2,315
2,300
2,000
1,600
500
250
29.4%
25.5%
18.9%
11.4%
3.8%
3.8%
3.2%
2.6%
0.9%
0.5%
29.4%
54.9%
73.8%
85.2%
89.0%
92.9%
96.0%
98.6%
99.5%
100%
61,165
100%
100%
Total
171
%
Cumulative
Turnover of
Products
Desired Market
Coverage

Step 4 - Addition Validation
Validate the possible addition of SKUs within the market coverage
desired, which are not currently stocked by the retailer
EXAMPLE
Products
to be
reviewed
for
addition
(that are
not
stocked
by the
retailer)
172
TOTAL
MARKET
Products
TOTAL
MARKET
turnover
(Value)
% of
Product
Turnover
%
Cumulative
Turnover of
Products
Product 1
Product 2
Product 3
Product 4
Product 5
Product 6
Product 7
Product 8
Product 9
Product 10
18,000
15,600
11,600
7,000
2,315
2,300
2,000
1,600
500
250
29.4%
25.5%
18.9%
11.4%
3.8%
3.8%
3.2%
2.6%
0.9%
0.5%
29.4%
54.9%
73.8%
85.2%
89.0%
92.9%
96.0%
98.6%
99.5%
100%
Total
61,165
100%
100%
Stocked by
retailer
Y
Y
N
Y
N
Y
Desired Market
Y
Coverage
Y
N
Y

Step 5 - Assortment Finalisation
Finalise the assortment by reflecting the various decisions
from previous steps
ITEM DELETIONS
RETAILER % OF
SALES
ITEM DESCRIPTION
RETAILER SALES
(BHT)
MARKET RANK
EXAMPLE
Product
Product
ITEM ADDITIONS
Product
Product
ITEM DESCRIPTION
Product
Product
Product
Product
Product
Product
Product
Product
173
TOTAL MARKET RETAILER SALES

TURNOVER
POTENTIAL (BHT)
MARKET RANK

Step 6 - Assortment Quantification
Quantify the decisions made by comparing the current and proposed
assortments on a variety of performance measurements
Estimate the impact on turnover, profit, inventory, GMROI, etc.
Performance Measure Impact
174
EXAMPLE
Turnover
(Value)
Profit
Inventory
(Value)
GMROI
Current
475,000
158,000
40,200
3.94
New
480,000
160,000
26,800
6.00

Efficient Assortment Data Integration
Different types of data must be used in order to make effective assortment
decisions
The suggested efficient assortment process uses a broad array of data, not
only retailers internal movement data and market share trend data
Efficient Assortment Data

Consumer Data
SKU Loyalty
SKU Substituatability
SKU Purchase
Profile
Exclusive
Purchasers
Consumer
Worth
175
Financial Data
SKU Turnover
Value
SKU Profit
SKU Gross
Margin
SKU Unit
Volume
Productivity Data
Market Data
SKU
Turnover/Meter
SKU
Profit/Meter
SKU GMROI
SKU ROI/ROA
SKU Market
Shares
Retail
Distribution
SKU Turnover
SKU Cash Rate
of Sales
Assortment - Supplier-Retailer Cooperation
Assortment rationalisation require the

co-operation of both retailer and
manufacturer by combining their skills,
unique perspectives and experience to
better understand and meet consumer
needs
176
Pricing Tactics
Pricing tactics dictate the prices retailers offer to consumers for the
products carried in the category
Pricing decisions are based on category role, target performance
measures, and category strategies as well as consumer and
competitive behavior
Pricing should accurately reflect the value provided to the consumer
Price is what you pay for something, value is what you get for it
Pricing decisions also allow retailers to position themselves in the

market - however, it does not provide for a long term differentiation pricing is easy to copy
177
Pricing Tactical Options

Description
Tactical Options
Decrease Price
Reduce in the retail selling price of an item or reduce the

average price of a group of items in the category
Increase Price
Increase price in an items retail selling price or increase

the average price of a group of items
Maintain Price
Maintain the price of an item or group of items at a

current levels
Uniform vs. Cluster
Vary the price for an item or group of items across

different stores, formats, or markets, based on
competitive or consumer differences
Private Label
Price private label items or groups of items based on

strategic, competitive and consumer positioning
178
Pricing Decision Criteria
Value Provided to Target Consumer

Current price image
Marketing Strategy
Cost/Benefit of various pricing
options
Pricing Tactics must be
continually assessed and
adapted
179
The challenge of effective pricing...
Is Pricing a Science or an Art?
180
Pricing Tactical Options based on Category Role

Category Role
Destination
Leadership pricing
best value (per unit of use) for entire category
Routine /
Preferred
Competitive pricing
Seasonal /
Occasional
Convenience
equal to competitive (per unit of use) for major components of

category
Competitive / Seasonal pricing
Acceptable (premium) pricing
181
close to competition on some components of category
within 15% of competition (per unit of use)
Pricing Tactical Options based on Category Strategies

Strategy
Parity retail pricing
Maintain competitive pricing on other SKUs vs. total market
Transaction
Building
Overall competitive pricing within the market
Aggressive pricing on certain items/ segments to stimulate purchase of

higher priced items
Traffic
Building
Discount high loyalty items to stimulate traffic
Price at or below key competitors on price-sensitive items
Profit
Generating
Maximize margin while remaining competitive in the market
Selectively vary margin based on consumer demand
Excitement
Creating
Periodically discount limited items / segments vs. market to create

excitement and urgency
Turf Defending
182
Category Pricing vs Category Sales
160
140
120
100
80
60
40
20
0
0,50
0,40
0,30
0,20
0,10
0,00
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Monthly Sales
183
Average Retail Price
Average Retail Price/kg
Monthly Sales
Category Pricing vs Category Sales
Promotion Tactics
Promotion tactics define the criteria for using various vehicles (ie. Advertised
features, displays, sampling, contests, discounts, etc) to promote the
components of the category in order to execute category strategies
Price promotions are the most commonly used promotional vehicle combined
with varying forms of consumer communication and activation
Promotions can play a strong role in supporting a variety of category strategies
184
Promotion Tactical Options

Description
Tactical Options
Vehicle/Type
eg. price reduction, advertising, themed promotion,

display, demos/sampling, special product packs
Product
Which items are selected to be promoted?
Frequency
How often to promote?
Duration
How long should the promotion run?
Timing
When is the promotional event scheduled?
Location
Location of the promotion in the store (displays/demos)
Cross-Merchandising
Should other items within or outside the category be

included in the promotion?
185
Promotion Decision Criteria

Marketing Strategy
What promotions are consistent with
companys overall strategy?
How will competitors respond to various
promotions
What impact does the promotion have on the
image of the item, category and the retailer?
Category Roles and Strategies
Which promotions best deliver the assigned
role and execute strategies?
Cost/Benefit of Various Promotions
How well do promotions work in the category?
Do they increase turnover? Market share?
Does the promotion attract new consumers?
Which promotions build loyalty?
How much does the promotion cost? What is
the return on investment?
186
Remember is is
not the amount
of promotions
rather their
effectiveness
Promotion Tactical Options based on Category Role

Category Role
Destination
High level of activity, high frequency, multiple vehicles

customized promotions
Routine /
Preferred
Average level of activity
Seasonal /
Occasional
Convenience
average frequency, duration, multiple vehicles

Seasonal / timely activity
Low level of activity
187
multiple vehicles
use selected vehicles only
Promotion Tactical Options based on Category

Strategies
Strategy
Transaction
Building
Traffic Building
Profit
Generating
Excitement
Creating
Utilize in-store promotions to encourage consumers to trade-up to

larger sizes, higher quality SKUs
Leverage cross merchandise opportunities
Frequently advertise high loyalty and high penetration items at

compelling price points (ie. Up to 20% discount vs. everyday price)
Offer loyalty / return visit incentives
Limit promotions to items with high profitability
Leverage cross-merchandise opportunities with high margin SKUs
Use promotion vehicles that dont rely on price discounts
Introduce new products supported by supplier marketing
Employ vehicles that stimulate consumer excitement
Choose optimal location for in-store promotions
188
Measuring Promotional Effectiveness

The definition of a promotion can be anything from a market-wide
sweepstake to a price offer in a particular retailer
Price promotions are the most common and yet the most infrequently
measured
An enormous amount is spent each year on CPG price promotions,

but
How much of it is effectively spent?
How much growth does it generate - in the short run? In the long
run?
How do you know? Is it measured?
How do you reward people for making good promotional decisions?
189
Weekly Promotional Analysis

Weekly Promotional Analysis is an analysis tool to help measure price
promotions and gain intelligence on the effectiveness of a weekly price
promotion
Accurate weekly scanning data from the retailer is required to conduct this
analysis
Information required includes:
price by SKU by week
scanned sales by SKU by week
knowledge of purchase patterns for holidays and general seasonally

The analysis is helpful in understanding:
the relationship between category price and sales
the impact of price promotions based on season and time (ie. holidays)
190
Shelf Presentation Tactics

Shelf presentation determines how the category will be presented to the
consumer at the point of sale
It is important to develop criteria in order to make decisions regarding managing
shelf space, category location in store and aisle, category layout, specific SKU
space allocation
Shelf presentation decisions need to reflect important strategic decisions and
should not be over-reliant on computerized formats
Shelf presentation tactics are one of the most visible results of category
management to the consumer
191
Shelf Presentation Tactical Options
Description
Tactical Options
Location within Store
Placement of category within store layout
Merchandising Plan /
Plan-o-gram layout
Layout of products on the shelf reflecting consumer

shopping behavior and category strategies
Space Allocation
Amount of space allocated to category, including

section length and linear footage
Uniform vs. Cluster
Alter the location, space allocation or layout by store

format or cluster
192
Shelf Presentation Decision Criteria

Target Consumer
Is it shoppable?
Competitive Positioning
Does the shelf highlight this?
Marketing Strategy
Is variety image communicated?
Are they consistent?
Cost/Benefit of Various Shelf
Presentation Options
Operational issues? Impact on
profit? Location?
193
Shelf Presentation Guiding Principles
Minimize Out of Stocks

Minimise Excess Inventory
Maximise Profit
Maximise Share and Volume
194
There are a number of Merchandising Plan / Plan-o-gram

Layout, however shelf layout should reflect category role and
strategies
Merchandising Plan / Plan-ogram Layout Options
Corporate block - aisle is divided
by suppliers
Brand block - aisle is divided by
brand
Segment block - aisle is divided

by sub-category or segment
Package block - aisle is divided
by package type
195
Example Shelf Layout diagram
The category aisle is not the only option for Shelf

Presentation & Merchandising
Location within Store
Layout Options
Plan location merchandising
through store diagram outlining
total availability points
Tie end isles or gondola ends
with promotion
Leverage cross marketing or
bundling displays through store
location
196
Example Store Layout diagram
Shelf Presentation Tactical Options based on Category

Role
Category Role
Destination
Prime store location

high traffic and exposure time
High space allocation
Routine /
Preferred
Average store location

high frequency
High space allocation
Seasonal /
Occasional
Convenience
Good store location
Average space allocation
Availability is key
Low space allocation
197
high traffic
Shelf Presentation Tactical Options based on Category

Strategies
Strategy
Transaction
Building
Traffic Building
Turf Protecting
Cash Generating
Shelf sets should direct consumer attention to higher priced SKUs
consider blending higher priced SKUs throughout set to

increase consumer exposure and purchase
High profile location and competitive category space allocation
Shelf presentation should be attractive to entice return visits
Shelf should carry high loyalty SKU segments
Plan-o-gram should direct consumer attention to higher margin SKUs
Capitalize on high impulse items
Locate higher margin categories in high traffic aisles
Consider blending higher margin SKUs throughout set to increase

consumer exposure and trade-up
Maximize visibility of private label and high profit SKUs/ segments

Plan-o-gram highlights new/ high profile SKUs / segments
Provide adequate space to get consumer attention
198
Summary of Category Tactics and Linkage to Category

Roles
Category
Roles
DESTINATION
ROUTINE /
PREFERRED
SEASONAL /
OCCASIONAL
CONVENIENCE
Tactical Options
PRICE
Leadership -
ASSORTMENT
SHELF
PRESENTATION
Complete
Prime store
best value
for entire
category
variety - best
in market
Competitive
Broad variety -
High space
allocation
Average store
and
consistent
with market
for major
segments
Competitive
seasonally on
some
components of
category
Timely variety
Acceptable
Select variety
Availability
of only major
brands/ SKUs
Low space
prices up to
15% premium
competitive in
market
location
High space
allocation
- as needed
Good store
location
Average space
High level of activity

High frequency
Multiple vehicles
Customized
Average level of
activity
Average
frequency/
duration
vehicles
Multiple
Seasonal/
timely
activity
Multiple vehicles
allocation
199
location
PROMOTION
allocation
Low level of
activity
Selected vehicles
Summary of Category Tactics and Linkage to Quadrant

Analysis
Quadrant
Identities
SLEEPERS
Tactical Options
PRICE
Lower prices
ASSORTMENT
Add
SHELF
PRESENTATION
PROMOTION
SUPPLY
Reduce Space
Increase frequency
Reduce inventory
Add segments
Better location
Increase frequency
Increase inventory
Increase
More space
segments
Reduce
coverage
WINNERS
Maintain
prices
Check against
Reduce out-of-stock
coverage
competitors
QUESTION
MARKS
Increase prices
Reduce
Reduce space
segments
Run off-shelf
Reduce cost
promos
Reduce inventory
More space for
Maintain
Increase inventory
high turn SKUs
Check promoted
Reduce out-of-stocks
Less space for
segments
Reduce costs
Reduce
coverage
OPPORTUNITY
GAPS
Increase prices
Review
segment mix
Increase
coverage
200
low turn SKUs
VII. Plan Implementation
201
Purpose and Steps
Project Management Skills
Using a Cross Functional Team
Critical Success Factors
Plan Implementation
CATEGORY DEFINITION
CATEGORY REVIEW
CATEGORY ROLE
CATEGORY ASSESSMENT
CATEGORY SCORECARD
CATEGORY STRATEGIES
CATEGORY TACTICS
PLAN IMPLEMENTATION
DO IT!
202
Implementation Plan
Purpose:
To guide the implementation of tactics developed during the category business
plan
To agree on resource allocation and timing
Steps:
1. Develop a specific implementation schedule
2. Identify and allocate resources and responsibilities
3. Communicate involved people
203
The implementation plan is critical to delivering the

benefits of category management
You cant build a

reputation on what you
SAY you are going to do.
You have to do it!!!!
204
Implementing the Category Plan

Plans are of little value if they dont get implemented
Often the benefits of category management are lost due to poor
implementation
Keep execution simple to begin with and increase action points with
improvement
They key components of plan implementation are:
1. Approval Process
2. Assigning Responsibilities
3. Scheduling
Use the implementation schedule as a communication tool
205
Step 1 - Develop a specific implementation schedule

ACTION
Assortment
Initiative 1
Initiative 2
Pricing
Initiative 1
Initiative 2
Promotions
Initiative 1
Initiative 2
New Products
Initiative 1
Initiative 2
Shelf Presentation
Initiative 1
Initiative 2
Productivity
Initiative 1
Initiative 2
206
JAN
FEB
MA
R
APR MAY
JUN
JUL
AU
G
SEP
OCT NOV DEC
Step 2 - Identify and allocate resources and

responsibilities
ACTION
Assortment
PERSON
RESPONSIBL
E
RESOURCES
Initiative 1
Initiative 2
Pricing
Initiative 1
Initiative 2
Promotions
Initiative 1
Initiative 2
New Products
Initiative 1
Initiative 2
Shelf Presentation
Initiative 1
Initiative 2
Productivity
Initiative 1
Initiative 2
207
Whos
responsibl
e for
delivering
success?
What
resources
are
required?
- money
- people
- systems
TIMING
COMMENTS
Step 3 - Communicate involved people

Moving the Retailer and Supplier relationship from 1-to-1 to
many-to-many requires the use of cross functional account
teams
Category Management Relationship
Category Manager
Trade/Customer
Marketing Manager
SUPPLIER
Retail Operations
Manager
Logistics Manager
Finance Manager
IT Manager
208
Strategically align Brand/Category/Consumer

Deploy resources & set priorities
Agree success measures & reward system
Develop brand and category strategies & tactics
Manage marketing activities
Manage merchandising of new SKUs / promos

Consolidate store coverage & assess capabilities
Manage integrated forecasting process

Consolidate shipments
Rationalize invoice terms and discounts
Audit promotion fund
Calculate Activity Based Costing (ABC)
Set information systems strategy & alignment
Manage EDI/EFT systems
Ensure data quality and standards
Category Manager
Trade/Customer
Marketing Manager
RETAILER
Retail Operations
Manager
Logistics Manager
Finance Manager
IT Manager
Critical Success Factors

1. Top management commitment
Category Management is not effectively driven by lower management
levels
2. Realistic expectations
Organizations need to realize that the implementation process can take
3-5 years, however quick wins can be achieved as early as 6 months
3. Defined business objectives
Setting specific business objectives will help prioritize implementation
work and allocate resources effectively
4. Defined business risks
Category management brings with it a degree of risks to the organization
that should be identified early in the process so that they may be
addressed quickly
209
Critical Success Factors (cont)

5. Willingness to change
Category management will challenge a number of current business
practices for both the retailer and the supplier - organizations must be
willing to make these changes to effectively implement Category
Management
6. Willingness to invest resources
A number of investments both in people and systems are required and
need to be quantified and committed from the start - both from the
supplier and retailer
7. Recognizing the learning curve
Experience in Category Management can create a competitive advantage
- organizations that take a wait-and-see approach will fall behind
8. Customized approach
While there are standard guidelines on Category Management, both
retailers and suppliers will likely adopt a customized approach based on
specific market dynamics and organizational cultures
210
VIII. Category Review
211
Purpose and Steps
Conducting a Category Review
Challenges and Barriers
The Way Forward
Category Review
CATEGORY DEFINITION
Key questions:
How did the category
perform?
What do we need to change?
CATEGORY REVIEW
CATEGORY ROLE
CATEGORY ASSESSMENT
CATEGORY SCORECARD
CATEGORY STRATEGIES
CATEGORY TACTICS
PLAN IMPLEMENTATION
212
Conducting a Category Review

Purpose:
NOT to focus on purely on the past, but to make decisions about the future
To focus on understanding causal factors from previous performance - both
good and bad
Steps:
1. Determine what categories to review how often
2. Determine what performance measures to review - weekly, monthly, quarterly,
annually
3. Agree role of supplier and retailer
213
Category management is not simply a review - it is a

continuous process focused on more effectively
managing the business
REVIEW
REVISE
Category
Strategy
and
Business
Planning
RE-VISIT
214
Measuring / Monitoring Category Performance

How often should performance be measured?
What role does the retailer and supplier play? This will ultimately depend on
information capabilities
What format should the measurement reporting follow? A common format for
all plans should be developed to avoid confusion
Focus should be not on what happened by why did it happen? Both good and
bad.
Use a disciplined, standardised process
215
Step 1 - Determine what categories to review how often

Select which categories to review based on ease of review (or information
availability and timeliness), and value to retailer and supplier
Then develop an approach on how frequently to review category
performance
Approach #1 - Category Reviews
Categories selected by Category Manager
Every category review 1 X per year
Revised every 6 months
Scorecard updated monthly
Approach #2 - Category Reviews
Categories selected by Category Manager
Every category reviewed 1 X (2 categories / year / Category
Manager) only
Updated every 3 months
Revised every 6 months
216
Step 2 - Determine what performance measures to

review - weekly, monthly, quarterly, annually
Based on the agreed scorecard and information availability, determine which
measures to review
Additionally, revise and agree future category plans
Example:
Weekly
Category /
supplier
sales
Category /
supplier
margin
Supplier
CTM
Monthly
Inventory
Turns
Space to
Share of
Category
Product
deletions /
introductions
Promo
effectiveness
217
Quarterly
Merchandisin
g
opportunities
Accumulatio
n of weekly
& monthly
performance
Next quarter
plan
Annually
Accumulatio
n of weekly
& monthly
performance
Next quarter
plan
A category scheduling tool can help facilitate the review

process
Example - Category Scheduling Tool
Group 1
Cycle Time
42
Categories in
Group:
Annual Review
Date
6 Month
Update
Review
Update Bath
New Items Set
New Item
Final Distribution
Up and
Plan-o-gram
Presentations
Decisions
Ordered
Updated
Week #
1
7
13
19
25
31
37
49
218
Category
12/21/98
2/1/99
3/15/99
4/26/99
6/7/99
7/19/99
8/30/99
11/22/99
12/31/98
2/11/99
3/25/99
5/6/99
6/17/99
7/29/99
9/9/99
12/2/99
1/6/99
2/17/99
3/31/99
5/12/99
6/23/99
8/4/99
9/15/99
12/8/99
1/20/99
3/3/99
4/14/99
5/26/99
7/7/99
8/18/99
9/29/99
12/22/99
Category
Annual Review
Date
Plan-o-gram
Approved
Plan-o-gram
and Product
Released to
Stores
Implementation
of POG or Cut ins begin in
Stores
1/27/99
3/10/99
4/21/99
6/2/99
7/14/99
8/25/99
10/6/99
12/29/99
2/1/99
3/15/99
4/26/99
6/7/99
7/19/99
8/30/99
10/11/99
1/3/00
2/8/99
3/22/99
5/3/99
6/14/99
7/26/99
9/6/99
10/18/99
1/10/00
6 Month
Update
Tips on Getting Started

Understand both retailer and supplier view and objectives on category
management - each retailer and supplier will view it slightly differently
Begin to formally work in cross functional team - sharing information,
responsibility and expertise
Determine current information gaps and barriers to effectively implementing
category management - put steps in place to close the gaps
Analyze assortment / range - it is a good first step as it provides some early
wins, plus range rationalization can be done in isolation or as a greater part of
category management
Have a firm understanding of profit and margin management - at the end of the
day, this is how retailers win
Develop a phased and realistic plan (use the SMART principle) - full
implementation of category management will take time, patience and
commitment on both the retailer and supplier side
219
Supplier Implementation Program

Phase 1
Capabilities Assessment
Understand current strategy linkages between company, category and
brand strategies; organizational ability to work in cross-functional teams;

and the nature of supplier / retailer relationships
Phase 2
Category Management Infrastructure Development Plan

Develop policies and procedures on category management including
issues such as data sharing

Develop capabilities presentation to retailers to position
Put in place cross-functional category team with job definitions,
performance measures and skill development plans

Design information systems to support category management needs
Phase 3
Customer Category Management Pilot

Select a suitable pilot trade customer based on a combination of both
business as well as learning opportunities

Complete the 8-step process and monitor results
220
Supplier Implementation Program (cont)
Phase 4
Category Management Process Refinement /

Transition and Roll-out
Modify planning process based on pilot learnings
Develop a transition plan including phased resource needs, timing and
selected category and trade customers
Phase 5
Expanded / Next Level Category Management

Develop and implement micro-merchandising based initiatives at store
cluster level
Integrate Activity Based Costing (ABC) measures in performance system
Develop cross-category activation opportunities based on detailed
consumer purchase behavior to create new generation destinations with

retailers
221
Challenges and Barriers

Unwillingness to change culture
Implementing without skills
Inaccessibility of information
Unwillingness to share information
Not understanding the importance of partnering

Performance measures out of alignment
Poor execution at a store level
Brand vs category focus
Lack of skills and resources
222
The way forward

Start somewhere - you dont need perfect
information to begin developing a category
business process
Keep initial steps simple - dont
overcomplicate objectives or
strategies/tasks. Results must be
measurable
Overly theoretical approaches simply dont
work
Retailers and suppliers need to adopt an
iterative approach - with ability to deliver
quick wins
Implementation must be viewed as a
continual journey
Building strong partnerships takes trust and
time
223
One size does not fit all
Jos Luis Portela Lpez

Director Programa Superior Direccin proyectos
IE Business School
Profesor Financial Times / IE / CLA
jlportela@faculty.ie.edu
: joseluisportela
Blog: http://projectmanagement.blogs.ie.edu/
Mvil 600912052
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Category Management Process

Jos Luis Portela

Professor of IE Business School

Category Management - Whats the idea?

The Category Management Model

The evolution of best practice Category Management

To what extent has best practice been adopted?

Case Studies and Results

Conclusion & future direction

Category Management - whats the idea?

Category Management is an initiative

Category Management is a critical part of the ECR led

Retailer / Supplier Cooperation

Efficient Store Assortment

Supplier / Retailer Cooperation

Definition of Category Management

Category Management - What is it?

for managing a retail business that

that results in joint retailer and supplier

that integrates distribution, procurement,

Category Management - Themes

Consumer Insight is fundamental to Category

The benefits of Category Management are different for

helps to leverage manufacturer

opportunity to influence retailer decisions

channels manufacturer resource into

forces manufacturer to focus on

opportunity to learn from access to

There are four key issues that are evolving traditional

Category Management - Why do it?

Consumer/Shopper Buyers and Needs

Category Management - Why do it?

- Difficulty for retailers and suppliers to differentiate their stores,

Category Management - Why do it?

- Driving or capturing growth during economic lows and highs

- Consolidation in the retail industry across Asia Pacific

Category Management - Why do it?

- Availability of data - Syndicated, POS, Consumer panel data

- Unlock data to make decisions

Category Management - How is it different?

The principles and concepts of Category

Lower costs through greater work process efficiencies

Category Management is NOT...

What are the challenges of Category Management?

Performance measures out of alignment

Lack of skills and resources

The Category Management Model

STORE EXECUTION &

To improve business planning and decision making and to serve as a basis

Types of Performance Measurement

2. Category Performance Measurements

Traditionally some buyer-seller relationships have been adversarial, but

Principles of Collaborative Relationships

Relationships and trust are earned not given

To assure timely and accurate data acquisition, organisation and analysis

Enabling Technologies are required to effectively

Data sources are fragmented and often incompatible

Under traditional conditions, capabilities were limited to the purchasing

Category management requires a new kind of

Reorganisations are often required in suppliers promotion, pricing and

Store Execution & Maintenance

a strong message needs to be sent from the top