Whether you are a retailer or a brand in modern trade, category management is essential to drive revenues and profitability. It allows your business to improve efficiency, manage inventory more effectively and make more informed decisions.
What are the benefits of having this tool in your business? And how can you choose the suitable model for your needs? In this article, we’ll answer all these questions and more so that by the end, you’ll have a solid understanding of category management tools and how they can benefit your company.
Category management is an essential part of running a successful business.
Category management is an integral part of running a successful business. It is the process of organizing products into groups – based on product benefits and technology – which helps customers search for what they want more quickly.
Using category management tools can help you manage your products in a way that makes them easy to find in-store. With the growing number of products and brands, categories offer a way for shoppers to navigate both physical and online shops. Category management also allows customers to discover new products they may not have known before their visits. And naturally, by association, they will provide clues to shoppers and what your product is or does. Assume you are launching a new brand of biscuits. The biscuit shelf is organized into categories and sub-categories, which will help locate your brand in their fundamental occasion (e.g., snack on the go, high tea, or morning breakfast).
Being situated in the correct category on the shelf will increase sales and boost repeat visits from satisfied customers who keep returning for more.
On the other end, new products creating new categories usually struggle with finding the proper position. When P&G launched Swiffer at the end of the 90s, they did not want to be relegated to the mop category, because of the low visit frequency, for a product that required a razor type of business model. When Hard Seltzers arrived in Europe – in countries where supermarkets sell stores – they were initially located in beers, which did not enable the category development.
Why you need category management tools
Category management tools help you make the most of your product categories—no matter where they are in the supply chain. They can:
- Help you understand and better serve your customers;
- Improve the customer experience; and
- Increase revenue and reduce costs.
But which are the quintessential category management tools?
1. Assortment Optimization
Coca-cola easily has 30-35 different references or SKUs for the modern trade. Which ones and in which stores would maximize the revenues per square meter?
Optimizing assortment refers to
- Which categories to include in a particular shop type, given that format differs on size and shopping mission. Hypermarkets tend to have the broadest assortment of categories, whereas convenience stores (<100sqm) focus on limited ones.
- How deep into the range of each category and what formats to include: so, for the selected product types, which formats are driving the business. Both supermarkets and small stores sell laundry detergents, but the doses per pack of the first are usually more prominent than the latter.
- The list of brands and how many per store typology
- The geographical declination of the stores based on the wealth of the neighborhood. While all convenience stores might offer spirits, whether a premium brand is listed or not will depend on the wealth of the zip code the shop is serving.
According to the Merriam-Webster Dictionary, a planogram is “a schematic drawing or plan for displaying merchandise in a store to maximize sales.”
A planogram is an essential tool because it serves multiple purposes:
- It helps central retailer teams to communicate to local stores how to display the merchandise, which is critical when brand owners and distributors pay for facings or listing fees (contractual obligations)
- To ensure that the assortment decisions are executed to drive better sales for the stores.
- To help stores reorder the right merchandise based on its priority or expected velocity.
Through the years, the shelving approach evolved, but three basic archetypes exist:
- Vertical Placement: where all products in the same set of benefits cover a vertical space across multiple shelves, where essential priority products are on the shelf more easily reachable
- Horizontal Placement: products are located on the same shelves, with easily reachable ones offering the highest importance/ velocity products.
- Block Placement: brands are allocated together, giving a stronger sense of importance.
Quite naturally, promotional activity, market share, and margin contribution drive merchandise allocations within planograms.
3. Promotional Planning
Modern trade creates promotional windows, which sell to brands and are usually negotiated as part of the yearly budget. So each category manager needs to maximize both the revenues they make and to whom they offer those windows. Also, the type of promotion includes exceptional temporary visibility, shelf stalkers, TV and radio tags, and Temporary Price Promotions. Those drive extra revenues for retailers and brands and are critical income and profitability drivers.
Both online and offline stores require analytics to understand how revenues change with planograms, promotional activity, and assortment changes. Analytics closes the loop by enabling all other category management tools.
Of course, each of those tools takes the shape of software nowadays.
What is category management software?
Category management software is essential for any e-commerce or brick-and-mortar retail business, especially managing multiple product lines or categories. The right category management software will help you organize your products more efficiently, which means higher visibility and more sales!
Category management software usually covers the four essential tools described above.
In conclusion, we believe that category management tools are critical to developing revenue and margin growth in retail.