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CATEGORY DEFINmOt'
PERFORM; MEASUf
CATEGOR STRATEGII
eaorv Defi~ i n I and purchasing decision trees and to determine^ SKUs^ in the category^1 . Cateaorv Role (^) 1 To communicate the category role determined during the strategic. phase ¥I;
-. -
- Category Assessment To iden - nts which are important to target shoppers To identify the gap between goals and current performance at the sub-category level To identify key opportunities versus the competition for the retailer' target shoppers To identify which products help build traffic, incidence, trans profit To identify the key tactical drivers which may impact the segment's performance ~ " W Z J .&&&- , To quantify the market opportunity identified during category assessment and create the benchmark for the on-going review To communicate which strategies the retailer and category will follow To confirm key product characteristics that will deliver against the, I strategies To provide guidelines for tactics, based upon chosen strategies (^) ^y; 1 To determine how to reach consumers through range, pri ' promotion and merchandising
Category Tactics
The Essential Guide t o Day-to-Day Category Management
Stage 1: Category Definition
The Key Business Question:
Dl. How should the SKUs within the category be segmented, based on consumer decision trees and therefore what SKUs should be included in the category'
Category Definition can be critical to a retailer's differentiation strategy because the way the retailer segments i t s category will impact i t s market position. Consequently, a clear understanding of the target shoppers' needs, buying behaviour, and the inter-relationships between product attributes that govern their choices, is essential.
Information about target shoppers is usually gathered via consumer panels and customised research, which are frequently carried out by supplier(s). Nevertheless, a retailer may choose to I define a category differently from its supplier(s). I I
From an organisationalpoint of view, it is imperative that categories are organised
according to consumers buying behavwur. Hence, where consumers think of solutions (e.g.
'7 want an 7talian meal"' - which could include spaghetti, mince, tomatoes, wine etc. - rather than more traditional supplier categories based aroundproducts - meat, pasta etc), these products need to be grouped and be seen as a category, i f this is how a consumer makes
purchasing &&ions.
The following explanations of category re- definitions must be included where applicable.
Any consumer research which impacts the
category definition and decision tree .
 Any major changes should be dearly (^) -'¥fe.+
highlighted with supporting rationale (as this
may Impact the merchandising)
A view on the supplier's, retailer's and market
information companies' category structure, data comparability and consi.stency across the three sources (1.e. how comparablethey are
without re-codi g). This provides insight into
any time lag >nd monitoring implications In data provision, going forward. b. Ç
Category definitions are becoming increasingly varied and retailer specific over time and this tendency poses significant challenges to efficient data delivery as market information companies are asked to conform to individual retailer's
"
definitions.
I
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Where a retailer and category adviser have
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determined the category definition, as long as there are no significant market changes, or new I insights, the category definition only requires a 'sense check'. A half day workshop is usually sufficient to allow for confirmation of the structure and definition.
The Essential Guide to Day-to-Day Category Management
Stage 3: Category Assessment
This phase has historically (in the 8-step model), included consumer and retailer assessments. However, in the Day-to-Day process, these analyses have already been conducted during the Retailer Strategy phase. Consequently, the market assessment conducted here is relatively straightforward, consisting o f only five Key Business Questions:
at are the demographics of the segm
The objective is to:
ents?
Establish whether the category's shoppers match the retailer's target shoppers (by demographics) Determine which segments and brands are most important t o the target shoppers.
kgment A - national
be 5 Key Business Questions (^) "
Al. What are the demogrqhics of the sefwents? A2. Who are the key competitors in the category? A3. Haw are the segments performing (where are the opportunitiesfor growth/improvement)?
A4. Whichproducts help build traffic, incidence, ,.
transactwn andprofit? " ,+-r^.,5,- * , AS. What are the key tactical drivers which rnay be impacting segment performance?
I - I u I I
I the retailer's performance.
Template A
i
I Â I
Iperson households !person households 4 person households MI household group# .eve1 of affluence ifestyle
dentified t a w
The Essential Guide t o Day-to-Day Category Management
A2: Who are the key competitors in the category?
The key competitors in the category can be determined by:
Understanding what spend within the
category is lost, i.e. where do the retailer's
shoppers also shop for the category Comparing their fair-share (market share at a national level) to their category share
Based on this understanding, the retailer will decide which competitors should be most closely monitored during category tactic planning.
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Outputs torsover-perform against their respective fair share
I 1 A view on which competitors should be most closely monitored (in a qualitative manner and using household panel) Insights1 0 Where a competitor is over-represented in a category, i.e. Category share greater Recommend- than fair share. For instance, if Competitor A has 25% market share at a national ations I^ level, but^ 35%^ at a category level, the simple ratio of^ 35%/25%^ indicates^ i t s^ I strength and over performanceltrading in that category
I Additional^ Analysis on how competitors' performance have been changing over time
Analysis 1 Analysis t o determine where residual spend is being lost from primary
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buyersheavy users or loyal shoppers (i.e.: focus the analysis)
I
Template A
oend % Marke id^ for retailer^ Fair share^ I
The Essential Guide
A4: Which products help build traffic, incidence, transaction and profit?
An understanding of the year-on-year changes of the following factors by segment will help to determine which products build traffic, incidence, transaction and profit:
W Penetration W Frequenv W Annual Spend H Volume
Recommend
Template A
category Sub Categoty
Pertarmance of the segments in terms of traffic, incidence, transaction and profit A view on which segments the category manager and account managers will ne to focus on when developing their strategy. For instance:
- a low annual spend may suggest wrong product mix. This conclusion will then be used to drive the category review and tactics (^) ;
- frequency, e.g. if consumer is buying detergents in the market eight times a year' but only twice in the retailer's stores' the conclusion is that there exists an opportunity to drive purchasing incidence (^) t Analysis by competitor can give insight (from household panel data)
Penetra- lndexvs^ ~;
Benchmark vs market
iual Index vs Frequency Index vs Transact- Index vs end H I 1 1 last year last year ion size last p i last year
The Essential
A5: What are the key tactical drivers which may be impacting segment performance?
It is important t o assess where, at a tactical level, To provide greatest insight, the retailer's there may be a problem or opportunity. A high category tactics should be benchmarked against level review of the category tactics can be (^) the marketlchannel. This will ensure that early performed t o assess the: focus can be given t o any appropriate tactics as the development of the plan moves t o the 1 Range coverage tactical stage. (^) I D Pricing differentials Merchandising W Promotions
ier _1 anal hoks at p w t b andpmpt to MentaB key opportunities; and qualitative& competitors' stmngths and weaknesses. Tmphtes A3 and& i m l d b e n c h r k n g_*
erever possibh. Category Advkers aw o h abh to a& insight on seasonal &
h Outputs 1 Performance of the sub-seqments in terms of the factors islet-
Recommend- ~ ations
Analysis
Template A
Sub Cateaor Segment
A view on whether the range is correct (based on sample market covg-, -el 7 7
A view on price range (entry and exit) versus the market^ qs->t-;^ .,.^ >.^. 4 > 7 ~ < i , * ~ G p +..-. - .+.;+ %S--@y. _,A+6$&p_ % ,-?c? I A view on percentage space allocation versus the market (^) gJq ef' $.+;:.t .+?,+%&. 8 - ;;.- A view on the number of promotions versus the market <%-,; ,, , L ~;. 1 ,-+cv7;,.* #-^ '%t^ ,.^ - A^ "" - ."!^ >q?i.< A view on own label share versus market, where possible and reIe~i!ihY
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Review suppliers' share of the categorylsegment t o get guidance on the supplier's strategy (bearing in mind that this analysis alone will not be sufficient t o dire& 4 1
N.B. Grey shaded boxes indicate that data may not be available, howew where available, it will provide greater insight.
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The Essential Guide t o Day-to-Day Category Management
Strategy and Category Assessment directions may identify different opportunities -these need to be agreed and committed to, by both the category team and senior management.
Stage 4: Performance Measures
This stage quantifies the market opportunity identified during the Category Assessment stage, which will be used to create the benchmark for scorecard and on-going review at the sub- category and segment level.
The sum of the sub-categoty opportunities identified during the Category Assessment stage using a bottom-up approach, should equal the opportunity gap identified in the Retailer Strategy phase (top-down, R6). This is because, the R 6 top-down analysis highlights the potential category opportunity based largely on fair share
*category and what targeh *L7ukdbe set?*^1
The size of the market opportunity within the category can be quantified in terms of the following criteria: analysis.
Meanwhile, the insights from the Categoty Assessment stage can be used to estimate opportunities for a brand, segment and category, using a bottom-up approach. The Retailer
H Value drivers, - Number of trips, Number of shoppers, % of baskets that contain category, Value transaction size H Financials - Sales value, gross margin and prof& H Markets - Value share, over-trade
Target --illbe se* jainst each criteria.
W G e segments in terms of the me- abov~ Insights1 (^) A quantifiable benchmark against which the retailer can measure the category's. I+< Recommend- (^) performance and confirm how the opportunity (financial) gap is likely to be filled, : ations (^) i.e. whether by shoppers spending more, or spending more often, or by attracting new shoppers
Analysis
Additional (^) For some companies, additional measures may be included, e.g. asset utilisation - can add further insights on the cosVsupply side (a menu that can be incorporated into the performance tracking if required and relevant for the category is given Appendix V ) Additional categoty specific measures may be used, where appropriate (e.g. waste in fresh foods)
Template P I
N.6. The variance between cun-ent perfotmance and tatyet performance will depend upon the role of the category The measures must be consistent w&h the demand drivers Q.e. tmffic, tmnsaction etc). Under certain market c o n d m d u r n l7gut-e~may be induded (e.g. introduction of ED& or 10s leader competition and price wars - as value and wluhe may tell d&rentstoties) The anabis can be performed at the lower levels of sub- cat ego^ segment, etc.
No of trips (shoppers] % of baskets that contain category Value transaction
size I
sales value I
1 Overtrade
The Essential Guide to Day-to-Day Category Management
Stage 5: Category Strategies
This stage represents a critical link between the retailer's overall store strategy and the indiiidual (^) category strategy influences the tactical category strategy. It identifies how the total (^) opportunities (illustrated i n Table 8). store strategy should guide the category strategy
.. -
1 In the Tier 1 afi rh, catq (^1) strategies may be simplyficusing growth andpro$t
r^ Gross margin
% of shop trips that contain (^) 1 the category
Re@..-. value Actual^ profit^^1
Driver
profit (increase the profit of each basket)
total store total #of opportunities shOPpnlfreq)
profii^ Y (increase the profit of the catwry) caWory)
(incwase size of total transaction or buy more often]
(Convert more shoppers to the category or more often]
Convenience
- LLow^ O prm^ Y^ ~^ ~ sensitivity
LOWproducts volume boughtyear 3 - 4 1
Larger sizes @ Impulsive families
Table 7 : Driven, opportunitiesand strategies
I Tot$ # 4 '
Range Focus on building Building baskets with Building sale of Convenience, loyalty, L e s SKUdright W J s with h'gh products h g h t less larger sizes, impul*, low price mRivity S U k higher turns, enetratbn, high frequenry frequently families I- complexity New products Build on manufacturers'awarenw, trial Initiativesto build (^) lnitiatiies to meet loyal Less failurdsp, 1 shopper needs Less wasted lab~ur investment
traffic build, mNhanits tojnduce apphcable stratem, for Crm^ â ‚ ¬ 0 catmow^ improvedand delivew^ p l a h m i
witching behaviour
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ononqmentsboughtbyta More space to w m e n b More space to segmen o m elsewhere. POS to build tra (^) bought by biq spenders. bouaht bv loval S ~ O D D Maximbe customer coverage of floor space. R e d ~ e 00s
- ,.. POGOpiomAe high D~splaysto explo~tcross margin products. POS for categov d e s Mlnlm~se cross category purchases 005 on h~ghloyalty
- Reduce^ OOS^ segmentdbr~nrk
Table 8 : /llusttative Guidelines for tactics in light of caiqwry driven
The Essential Guide t o Day-to-Day Category Management ., % :
Stage 6: Category Tactic Development
Having gathered sufficient data for an 80: analysis (i.e. 80% of the insights obtained from 20% of analysis), analysed the relevant market, developed insights and set performance metrics, the retailer is now ready t o determine what tactics will be used t o deliver the strategy. The retailer and supplier(s) aim for the best tactical mix t o satisfy their target shoppers in terms of range, pricing, promotions and merchandising.
This process is not intended to be prescriptive but presents an opportunity for creativity and it is here that the retailer can further harness competitive advantage.
Many companies will have mechanisms and toolkits for developing category tactics. Some will have automated specific parts of the tactical analysis using various tools, e.g. pricing and promotion. All these mechanisms and tools should be used t o build upon the base level of information proposed in the Day-to-Day process, only when they genuinely add insight and value, and not waste resources better allocated elsewhere.
The development of an implementable category plan requires the early involvement of specific experts or functions. Table 9 provides some guidelines for this.
Store Operations
Regional Directors Store Managers
YR Rany/Assortment: What is the op
fartheretaHer?
n* Pricing What is the optimalpricing structurefor
the retaih?
FE. Promotion: What is the optimalpromotions mix
for the retai'h?
TM. Merchandising: What is the optimal w e of
spacelsignage and adjacenciesfor the retailer?
If a major review is being conducted, a category may undergo significant changes. Under suth circumstances, involvement of field staff throughout this stage is essential. It is also recommended t o use regional staff and merchandising t o review recommendationsand build changes into implementation plans so that they are in line with other store activities. Equally, it is important that the affected supplier agrees up-front, the boundaries of its analysis, the confinement of the legal obligation of its advice (e.g. a supplier can advise a retailer on pricing or product mix but the actual output is entirely at the discretion of the retailer),& roles, responsibilities and access t o the collated information.
To confirm the impact of store roll-out and manage the roll-out timetable (^) 1 To confirm the feasibility of tactical recommendations, especially regarding timing for new product introductions and de-lists, promotional calendars, merchandisina recommendations, etc.
To confirm the appropriateness of the plan and evaluate the extent of. icjt:Kj
disruption at store level , ' 5 - ' ^ '^ -A?.-d,<' To assess the additional resources required for major category changes=,, To manage programme for major re-lays
ianagemer* -f chi---- Table 9: Guide for mtes and responsibilities
The Essential Guide t o Day-to-Day Category Management
Inputs to the Tactical Phase
A number of inputs (from the preceding phases) will be used to develop the category tactics: Corporate Strategy and strategies to support the tactics:
- Ranaina Strateav (e.g. is the retailer about breadth or depth?)
- Pricina Strategy (e.g. is the retailer about EDLP and loyalty, and what is the price perception versus price reality?) Promotions Strategy (which links with pricing, i.e. if EDLP, then the retailer will focus less on promotions and work with suppliers to keep prices low)
- Merchandisina Strategy (e.g. how important is the 'look and feel' of the retailer's stores and how does the retailer use promotional/seasonal space?). This includes the allocation of space for each category (often with variations according to factors such as regionality and store size) A clear understanding of what the retailer's target shoppers are buying:
- which segments, brands and products are important to them? (A1) An indication of the size of the opportunity within each category and sub-category, and what the likely causes of the under- performance may be (A3 & A4):
- e.g. wrong customers/products, low penetrationlfrequency? Assessment of which category tactics will best close the gap - with input from the Retailer Strategy phase:
- R6 (Strategy)
- PI, A3. A5 (performance metrics)
- Table 9 (tactical guidelines) A view on which competitors to track (e.g. in pricing)
Range -What is the optimal assortment for the Retailer?
TRI: What exists in the market and are there any missing SKUs?
A retailer can determine if any SKUs are missing from its own range by:
Reviewing the market and channel coverage vs. the retailer coverage Identifyingforthcoming new products
introductions from a supplier
Where data is available, ranking of sales in volume or value will identify the most important missing products
The Essential Guide to Day-to-Day Category Management
TR2: What SKUs are unproductive and should be deleted?
SKUs and range productivity can be determined TR2a) 80120 SKU Cumulanve sales analysis using a variety of methods. A toolkit consisting of 3 analyses is provided here and practitioners may choose between the options, but are strongly urged t o run sense-checks on the results prior t o making any de-list recommendation. The 3 analyses are:
TR2a. Cumulative Sales Analysis (80:20) TR2b. Contribution t o Financial Performance TR2c. Productivity figure 7: Output from Template TR2a Conduct for market and retailer
Cumulative sales
TR2b) Are SI :s/brands/SKUs " :ategory under-contributing t o financial per' nance :>alesvalue contribution %
woss margin contribution 9 Top 50% Bottom Top 50% Bottom 20% Top 50% Bottom 20% Top 50%
1 Category
-- 1
Template TR2b - May conduct drill-down analysis for brands using same table
TR2c) Is the category productive at market and retailer level? f t - 1 However, before a SKU^ is^ de-listed,^ it^ should be verified against the list below. If positive response is given t o any of the checks, the retailer may consider keeping it.
Where foi low% segments of value accom - if the priceloss are leaders low a nd generatinginterest this is fine, otherwisewhatdoing to change am this I H Variety (i.e.: not duplication) H Spontaneous awareness W High usage level W High loyalty H Strong regional following H Low cost of keeping Part of investment of growth strategy H SKU is growing Impact on corporate image is high
Segments
Figure 8: Output from Template TR2c
SKUs can be identified as 'unproductive' and potential candidates for de-listing if:
W They are in the tail of template TR2a W They are in the bottom 20% in template TR2b They are in the bottom two quadrants in TR2c
Additionally, some segments may display artificially low value if they are positioned as low pricelloss leaders. These segments must be evaluated differently - for instance, based on level of interest' generated.
The Essential Guide t o Day-to-Day Category Management
Optional Additional Range Analysis (^) Spendina and basket size: In terms of privatelown label, the strategy must (^) Use segments through to SKU level that are be aligned with that of the category. A retailer purchased by big spenders and therefore need may want to conduct a separate analysis for own label. Data is often difficult to obtain on own could be used to make this impact. label, but where appropriate and possible, (^) Lovalty and freauenfi~i comparisons and analysis should be conducted. (^) Use segments through ~ O S K Ulevel that are Depth of distribution - in which stores (size of (^) bought by loyal shoppers and therefore need stores, or region) are the products listed? Is to be in stock at all times. there a rationale for broadeningthe distribution
- e.g. where larger pack sizes are purchased and preferred they should be introduced into the 'local'/'metro'/'high street' stores to deliver improved consumer satisfaction. Regional analysis - which products are important in each region
Output Check of Ranging Tactic Recommendations- Illustrative Ranging Options (^) the retailer? The output recommendations should then be checked against the category strategy chosen by the retailer:
Penetration and Traffic B u i l d w (^) TP1. Whichproducts are highly elastic and require Make use of segments, brands and SKUs with (^) constant monitoring?
high reach which are purchased by target TP2. Whichproducts contribute to margt'n and where is
shoppers, but bought elsewhere. These should (^) the opportunity? (vis-a-vis competitors'prices)
be added to the range. TP3. How does basepricing cornpare with promotional
Conversion: pricing (in the retailer and in the market)?
Use segments through to SKU level to build conversion and, where possible, to convert shoppers to the category.
Her 1 analysts looks at k g price point coverage, KVLfor tracking, competitorpricing
1
strategies and emures allpment withpricingpolicy andprice inflation.
The Essential Guide to Day-to-Day Category Management
TP2 Which products are contributing to margin and where is the opportunity (vis-a-vis competitors' prices)?
The retailer determines the products which contribute to margin by:
H Comparing price levels with the competition
Identifying the elasticity Estimating sales, gross margin and contribution
A recommendation on pricing and margin levels
margin mix in the category Identification of segments which offer potential for margin increase either through price or volume ." Additional. Qualitative/ad-hoc research, to include coverage of competitive SKUs; adds more Analysis insight into opportunities for price changes A data aggregation or neutralisation at category level would enable this
information to be shared with the category adviser
Template TP
% Sale! (^) Gross ----:- m,
Elasticity 1 Com~petiorA Competitor 1 Competitor C Gross matgin I factor I^ --:--^ I^ price^ I^ fd-:LÂ¥.L
1 Totalled^ to
TP3: How does base pricing compare with promotional pricing (in the retailer and in the market)?
In order to determine the spread between base prices and promotional prices in the retailer and the market, an understanding of the following 2 questions is required:
Is the retailer spread comparable to or different from the market? Is the retailer's spread appropriaWsufficient?
These can be determined by:
Tracking the current and previous period base and promotional prices Comparing the retailer to the market
Â¥"+Essential Guide to Day-to-Day Category Management
issues exist or where IoyaltyIEDLPstrategies are being introduced)
Additional N.A. Analysis
Template TP
Category
Sub-Category
Sub-Category B
Base price Promotional price
Current
Current Compari current Current Compari- Current Compari (^1) price period son period period 1 son 1 period son period 1 period ndex tomarket I
Output Check of Pricing Tactic Recommendations
- Illustrative Pricing Options: The output recommendationsshould then be checked against the category strategy chosen by the retailer: Penetration and Traffic: Use segments, brands and individual products which build price image Determine which highly elastic products must have an absolutely correct price Conversion: Determine how price can be used t o promote trial and increase purchase S~endinaand basket size: Focus on the big spender segments Determine how price elasticity can be exploited Lovalty and freauency: Use pricing tools which attract loyal shoppers, e.g. EDLP. Use pricing t o encourage frequency of purchase
Promotion -What is the optimal promotions mix for the Retailer? I 'he Key Business Questions
TE1. What promotional activities are occurring in the market (competitor intensity and number of promotions)? TE2. Do promotions in this category deliver real growth? TE3. Which SKUs deliver the greatest gro TE4. Whatpromotional mechanics should be us what times, to optimise the promotions mix?
The Essential Guide t o Day-to-Day Category Management
