Pub 2000 essential_guide_daytoday_catman


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„Category Management is a ..

retailer/supplier process
of managing categories as strategic business units
producing enhanced business results
by focusing on delivering consumer value”.

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Pub 2000 essential_guide_daytoday_catman

  1. 1. The Essential Guide toDay-to=@ay Category Management
  2. 2. DisclaimerThis study in this publication is promoted by the members of ECR Europe and has been made possiblethanks t o the active support of those companies and organisations which participated in the project workundertaken by the authors and consultants at Andersen Consulting.However, the ECR Europe member companies, participating companies or organisations and AndersenConsulting, individually or collectively, do not necessarily endorse every technique, process or principledescribed herein. Neither the authors, nor any ECR Europe member company, or participating company ororganisation or Andersen Consulting individually or collectively accept any responsibility or liability inconnection with this publication or the techniques, processes, templates or principles mentioned in it. Thematerial presented in this booklet is for information only and any use of such material is made solely atthe risk of the company or organisation using such information and without any liability for the authors,any ECR Europe member company, participating company or organisation or Andersen Consulting.Companies or organisations using the material presented in this booklet are advised to seek professionaladvice addressing their specific requirements. Companies are responsible for satisfying themselves as toany applicable laws or regulations with which they must comply including, without limitation, theprovisions of any applicable data protection or competition laws or regulations.
  3. 3. AcknowledgementsThis report was made possible by the contributions of the members of ECR Europe. Their leadership anddirection, their willingness t o share information and the results of existing processes within their ownorganisations have added significantly to the contents of this project and report. On behalf of the ECREurope Board, we would like t o thank all of those listed below who willingly gave their time and expertiseas members of three different work groups, offering input to and reviewing this project.In addition, we extend special thanks and recognition to our consultants, Andersen Consulting, who, atthe request of the ECR Europe, facilitated this project. The team has been instrumental in creatinga day-to-day category management process and making it accessible as an industry solution to all retailersand suppliers.ECR Europe Category Management In addition the following companies were alsoSteering Committee: involved:Luc Demeulenaere Procter & Gamble Friesland ReweGrant Wither Tesco Stores Henkel ICAHubert Weber Kraft Foods International Safeway MetroMichel Joannic Kraft Foods International The Partnering GroupChris Turner Unilever The following companiesThe following companies participated in E R Europe Category Cparticipated in ECR Europe Category Management Pilot Teams:Management Work Groups: Procter & Gamble Tesco Stores Van den Bergh Foods Lever Faberge Procter& Gillette Kerry FoodsProcter & Gamble Gamble Coca-Cola Sonae PAM SuperBestTesco Stores Groenwoudt Groep ECR Europe Category ManagementKraft Foods International Consulting Resource:Unilever Ray Jewitt, John Zealley, John Hallerman, Vicky Mitchell, Massimo Pignatelli, David Sharpe, Alison Dixon-Brown, Andrew Smith, Euanne Ng, UlrichCoca-Cola Brand, Natalie Roney, Myles Bush, Ross Tulloch and James Fraser AndersonSonae All rights reservedKesko No part of this publication may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in any retrieval system of any nature without the written permission of theInformation Resources copyright holder @ ECR Europe 2000Europanel PANEL Facilitated by Andersen Consulting A Andersen ConsultingThe Essential Guide to Day-to-Day Category Management
  4. 4. TABLE OF CONTENTS FOREWORD .............................................................................................. 41 . EXECUTIVE SUMMARY ................................................................................. 62 . INTRODUCTION: WHY THE NEED FOR A NEW SOLUTION? ........................................ 103 . THE CONTINUUM SOLUTION ........................................................................ 12 OBJECTIVE OF THE DAY-TO-DAY CATEGORY MANAGEMENT PROCESS ............................ 14 PRE-REQUISITES FOR PRACTISING CATEGORY MANAGEMENT ...................................... 15 Data - t o create a catalyst for change ........................................................... 15 Organisational alignment ......................................................................... 16 A collaborative mindset ........................................................................... 16 IT tools t o automate the process ..................................................................17 CONCLUSION .......................................................................................... 18 4. A N OVERVIEW OF THE DAY-TO-DAY PROCESS ....................................................... 19 GETTING STARTED ..................................................................................... 22 INPUTS TO THE STRATEGIC PHASE ....................................................................22 4.1 PHASE 1 - RETAILER STRATEGY ....................................................................... 24 4.2 PHASE 2 - DEVELOP CATEGORY PLANS ..............................................................36 Stage 1: Category Definition ......................................................................41 Stage 2: Category Role ............................................................................ 42 Stage 3: Category Assessment ..................................................................... 43 Stage 4: Performance Measures ...................................................................49 Stage 5: Category Strategies ...................................................................... 50 Stage 6: Category Tactic Development ............................................................52 4.3 PHASE 3 - IMPLEMENTATION ......................................................................... 66 4.4 PHASE 4 - REVIEW .................................................................................... 70 . 5 CONCLUSION ............................................................................................. 72 . 6 APPENDIX I- OVERVIEW OF THE TIER 1 SOLUTION ................................................. 75 . - 7 APPENDIX I PRODUCT CLASSIFICATION ............................................................ 78 I . - 8 APPENDIX Ill TEMPLATES ............................................................................80 . 8 APPENDIX I V - DATA SOURCES BY TEMPLATE .......................................................88 . - 9 APPENDIX V MENU OF REVIEW MEASURES ........................................................90 . -10 APPENDIX V I GLOSSARY ............................................................................. 92 .11 APPENDIX VII - EU COMPETITION LAW GUIDELINES ................................................ 95The Essential Guide t o Day-to-Day Category Management
  5. 5. ForewordSignificant opportunities exist in the grocery Whilst every company recognises the benefits ofindustry as we move into the new millennium. practising category management, not all .haveWe are witnessing paradigm shifts in economics been able t o do so due t o the complexitiesand technology, creating the opportunity for a associated with the 8-step category managementnew collaborative category management model: process. The successful practitioners have reported significant benefits through increasedM Interaction and collaboration costs are consumer satisfaction and cost savings. However, plummeting even the big players have only managed t o cover Access t o information is no longer restricted or a few categories on a project by project basis. expensive for organisations, their customers or There has been a strong desire t o proliferate the trading partners practice of category management, making it an Technology is creating opportunities which integral part of the way retailers and suppliers do recently existed only for big players or those business on a daily basis, an aspiration that is at with deep pockets the heart of E R Europes vision of seeking t o C An increasing need t o focus on demand benefit the entire industry, both large and small generation t o meet shareholders expectations companies. Building consumer loyalty is increasingly a key t o success Importantly, this report seeks t o build on the 8- step model for category management byRecent efforts by retailers and suppliers have demonstrating the key areas of focus andsought t o transform their adversarial relationships providing a flexible solution for those who wantinto collaborative partnerships across both t o practice category management. It illustratesdemand and supply t o develop new consumer how a company can get started on the Day-to-value, with E R playing a central role. The real C Day Category Management process and realisepower of E R Europe lies in i t s ability t o increase C benefits, sharing of information andexpertise between trading partners as they move For the purposes of this report, the definitionstowards the common goal of increased consumer from the "Best Practice Report" should be used:satisfaction. Definition of a Category A category is a distinct, manageable group ofThe desire t o increase the practice of category products/services that consumers perceive t omanagement and the capabilities of all be interrelated and/or substitutable incompanies involved is seen as a critical step in meeting a consumers needscreating a level playing field by providing access Definition of Category Managementt o fact-based decision making. Increased Category Management is a retailerlsupplierinformation and knowledge improve the overall process of managing categories as strategiccategory performance and competitive advantage business units, producing enhanced businessis now achieved through superior insight results by focusing on delivering consumergeneration and creative use of the fact base, value.rather than access t o the fact base itself. The Essential Guide t o Day-to-Day Category Management
  6. 6. Purpose of This ReportThe objective of this report is to present a It must be remembered that the matterssolution which transforms category management addressed in this report will need t o befrom a project based activity into an on-going considered in the context of a companys oractivity. It therefore provides: organisations specific requirements and they are A 4-phase framework which consists of key therefore advised to seek professional advice on strategic business questions and a toolkit for any use of the contents of this report. addressing these questions. The first phase is a retailer strategic positioning, which allows a retailer to treat all i t s c.200 categories in an appropriate and strategic manner. A way to reduce the complexity and proprietary nature of existing category management processes, transferring them into a day-to-day operational environment in order t o allow: - broader category coverage for companies already practising category management - new entry of interested companiesD Insights and examples which bring the category management process to life at all levelsThis report is published with the intent ofproliferating the number of categories andcompanies that are able t o employ fact-baseddecision making in category management byproviding a framework and flexible toolkit. Theexamples provided in the report are strictlyintended t o demonstrate how key businessquestions could be answered using a variety ofanalyses rather than how key business questionsshould be answered. The choice of the analysisis often driven by data availability.Similarly, the illustrative templates are simply that-tools which enable the capture of data toperform the required analysis -the focus mustalways be on answering the key businessquestions. A set of templates have beendeveloped to help those who require a structureand a pointer for where to start - it is availableon the ECR Europe web-site - Practitioners are reminded thatthese templates may evolve over time as dataavailability and requirements change.The Essential Guide to Day-to-Day Category Management
  7. 7. Category Management accessibleto all, every dayDespite widespread acknowledgement of thesubstantial benefits that category managementdelivers, many retailers and suppliers are excludedfrom benefiting because of the numerous barriers-cost, time and data availability, t o name but afew. Category management should be availablet o all players, as part of their everyday workinglives, and not only t o the major categories or bigcompanies who have the resources t o completelengthy and labour-intensive analyses.The Day-to-DayCategory Management processThere are four key phases in the Day-to-DayCategory Management process, as illustrated inthe Figure 1.Phase 1 Phase 2Up-front strategy phase, performed Development of the categofy plan.across all categories, allowing a Category Definition, Category Role.retailer to effectively manage all Category Assessment, Performance(-200) of its categories. Targets, Category Strategy, Category Tactlo.Phase 4On-going tracking and reviewof the Phaw3implemented caiegoty pteÈtoy This phase focuses on In-storeretailers and suppliers ensures that implementation.the jointly agreed teqSsçr AddTtional Implementation guidelines are includedwithin the planning phase thereby increasingbrine the process it a. day to day no the likelihood of implementationsuccess.Figure 1: W-to-Oay Cateflw M w m e f m i t processThe Day-to-Day Category Management process is data, the strategic importance of the categorya solution which overcomes the complexities and the experience of the category partners areftSSOCIatedwith practising the &step Category all combined t o determine the depth of detail atManagement model. It Is a continuum solution which analysis can be performed for any givenin the sense that it allows analysis to be category. Three "tiers" of analysis on thisperformed at a level of sophistication which i s continuum have been identified, and aretailored to the case in hand. The availability at illustrated in Figure 2. - The Essential Guide t o Day-to-Day Category Management
  8. 8. %step or company proprietary category management models @It requires the highest level of data, extensive resources and high levels of collaboration betweenFigure 2" Continuum Solution Tiers "Best Practice Lategory Management is Like getting a man on the moon. Thefirst time you do it, nobody cares about the time and cost. But then, ifyou want to make a business on the moon, and come back every day, cost, time and overall ease become highly important matters. Fortunately, day-to-day management helps to decrease cost and time dramatically, and it is much easier than getting a man on the moon I * . The Essential Guide to Day-to-Day Category Management
  9. 9. The Day-to-DayCategory Management processrepresents a flexible toolkit and which enablesexisting tools to "plug and play", whilepositioning them in a wider strategic context. Aset of templates has been developed to guide theanalysis for answering each of the "key businessquestions" that the process asks. Answeringthese questions is crucial t o performing categorymanagement, and the templates will aid in this,but they should strictly be considered as a guideand should not in any way be seen t o represent aprescriptive or exclusive set of tasks.As the process develops, it is planned that thefollowing important factors will also be takeninto account: Alternative channels, particularly ecommerce Loyalty card marketing Activity based costing Virtual shopper database Increased automation through information technologyH Supply chainloperational efficiencies The Essential Guide to Day-to-Day Category Management
  10. 10. Since i t s inception, category management hasprovided significant benefits t o those companieswho have successfully implemented the process,some of which include: Up t o 10% uplift in sales- Product margin increases of up t o 3 percentage points Inventory reductions of up t o 15%Courtesy of Andersen ConsultingHowever, implementing category management iscumbersome and often requires a complex seriesof projects, involving people across functionsfrom both retailer and supplier organisations.Practitioners have t o manage the intricate reviewsof one category after another, undertake lengthymanual analyses, struggle t o align with strategicdirection and hardest of all, implement thecategory plan in store.In dealing with the complexity of the process,multiple proprietary tools have emerged and arecurrently used, mainly by suppliers, in categoryanalysis, but many still require significant timeand effort. Consequently, even the large retailershave insufficient resources t o manage more thana small selection of categories, and the choice ofthese categories is frequently not based on anystrategic rationale.More importantly, E R Europe is keen t o develop Ca solution which will extend the accessibility ofcategory management t o all companies, large andsmall, international and national. This sets thefoundation for the project that developed theDay-to-Day Category Management process, whichis presented in this report.The Essential Guide t o Day-to-Day Category Management
  11. 11. The new solution is designed to be widely rhe ability of a retailer or supplier in practisingaccessible and capable of integrating category :ategory management on a category, however,management into the organisations business depends upon a number of constraints, including:model, making it a truly day-to-day process. Todo this, the process offers a way to overcome the Level of data availability in the marketcomplexities associated with conventional Role of the category within the retailercategory management and delivers against the Availability of resource (especially analytical)following requirements: Experiencehkill with category management Collaborative and cultural nature of potentialH A process that is integral to the working lives partnerships between supplier and retailer of category and account managersH A clear retailer strategic positioning and In light of these factors, the solution has to be prioritisation of roles sufficiently flexible and adaptable to cater for Key business questions and examples of various category needs. Given these needs and analysis which can be performed to answer constraints, the solution takes the form of a the questions, based on available data, continuum. There are 3 tiers along the applying an 80:20 rule continuum and the tiers are differentiated by theH An approach to capture and structure depth of their analysis. Hence, the solution offers available data in a coherent manner (e.g. 3 alternatives t o answer the same set of key using a set of easy-to-complete templates) business questions. In terms of depth of analysis,H A category plan which delivers against the it increases with the tiers, with Tier 1 being the strategic objectives of the category lowest level, Tier 2 higher and Tier 3 the highest.H Clear guidelines on implementation Figure 2 illustrates the minimum requirements for throughout the process performing analysis at each tier. The potential for automation of analysis and review (e.g. using enabling technologies - leading edge web-enabled middleware) A "Template"isa pre-defined spreadsheet that captures key data and computes itfor anal$. Value is gained notfromfilling in a ternplate in itself but from translating the gathered data and computed analysis into some form of visual and yaphieal representations to generate insights and identify variances and opportunities.The Essential Guide to Day-to-Day Category Management
  12. 12. Tier 1 Tier 21 - i.muJ.suitable wher. - or iiiu.e of the following situations exist JThisI~themainstreamDay-to-Oa) solution which builds upon Tier 1 solution with stronger fact-based @ Retail scan data with limited analysis using a combination of: market information1 householdpanel for @ market level ¥I requires the highestlevel of benchmarking @ household panel data, extensive resourcesand high @ Relies more heavily on ad-hoc @ retailer data levels of collaation between research, e.g. consumer focus supplier and retailer groups, work shops @ Low levels of retailer1supplier collaboration @ Low category priority (retailers point of view) @ Limited resource and skill availability @ Limited experience with category managementFigure 2: Continuum Solution Te s irEach organisation assesses which level of analysis Objective of the Day-Dayis most appropriate for the category being Category Management processconsidered. Different tiers will be suitable atdifferent times depending on a number of The objective of the Day-to-Day Categoryfactors, mentioned above. Newcomers t o Management process is t o help accountcategory management may find it easier t o managers, category managers and categoryinitially work with the Tier 1 solution and as they buyers to:become more experienced with the tools, maymove up t o Tier 2 for some categories. However,experienced practitioners who are familiar with - - mtigate or enrich their category management thinkingusing the Tier 3 solution, may still choose t o use  Become moreconsumer focusedthe Tier 1 or Tier 2 solution if the circumstances  Effectively incorporate the pmcipk~of EOTare appropriate or if they are comfortable with Europes Best Practices into their dçlwbusinesan 80:20 approach, or where speed t o implement processeschange is critical. In doing so, resources can befreed up t o concentrate on a more strategicallyimportant category. It is believed that in datapoor environments, or for a low priority category,the Tier 1 solution can be sufficient t o meet theneeds of the category. The Essential Guide t o Day-to-Day Category Management
  13. 13. Pre-requisites for practisingCategory ManagementAlthough the continuum solution has been Collaborative Midesigned to enable a many newcomers a s spossible, not every organisation will automatically 1 IT Automation Tools -be able to practice category management. Thefollowing 4 enabling conditions need to be inplace:Data - to create a catalyst for change, Data is the key success factor for the Day-to- Day Category Management process. The benefits associated with the solution can only to all business partners, in a flexible format so be realised if retail scan data is available, even that both retailers and suppliers build though a variety of formats and types of data dynamic hierarchies and conduct their respective may be used drive the and produce analysism The competitive advantage of each insights. retailer and supplier should come not so much Some retailers will not be willing or be in a from the possession of the data itself, but rather position to share data with suppliers for fear from the interpretationof the data, and the of losing competitive advantage or due to a differentiated strategies that result from that lack of trust. In any case, there should be no interpretation. sharing of sensitive information between competitors. Any sharing of sensitive data can ECR Italia and ECR Deutschland have started - only take place in the one retailer one working together to achieve standards in product supplier" category management relationship. classification and coding. The ECR Italia vision, The retailer and supplier will decide, in their which is based on a flexible aggregation of one-to-one relationship, which information standard "building blocksm form customised to they need to share, in order to make the category structures, is outlined in Appendix II of category management work. Where there is this report. an issue, company and country specific legal advice should be sought. The benefits of achieving the data standardisation vision are significanHistorically, data sharing on the supply side has H Standard deliveryexperienced a similar degree of scepticism.However, such barriers have since been removed byevidence of significant financial benefits resulting , H Ability to compare across markets Automation of the solution (less time and increased value)from sharing of data in the industry. Collaborative H Lower costcommerce has become a business reality. Category management can be scary, but once you get over the hurdle ofgetting started, you can rapidly get creative aboutyour relationship." Kiemn Hemsworth, Coca-Cola ¥ 4 The Essential Guide to Day-to-Day Category Management 1s I
  14. 14. Organisational alignmentCompanies tend t o move from basic to advancedduring their journey in practising categorymanagement. There is widespread agreementthat a companys experience and organisationalalignment with category management can be oneof the determining factors when choosingbetween the tier solutions. Companies can opt t oignore this factor, but for those who consider thist o be an important determinant, a "road-map",illustrated in Table 1 can be used t o assess the ,current organisational alignment and categorymanagement skill level of a company. The road-map, therefore, provides a guide t o whatconstitutes "basic" and "advanced" with regardt o the following factors:1 Frequency of cateqorv review 1 One-off project 1 On-going 11 Internal res~onsibilitv 1 Team I I 1 External fo<1 -Minimal1 Level of additional analytical resource 1 None 1 Definedanalytical experts 1 available to support the process Senior manaaemen-port for^Hprocess I Table 1: Organistional Alignment and Skill Level Road Map Factors A collaborative mindset This is an important pre-requisite for initiating any category management programme. The merits of category management are increasingly being recognised - nonetheless, in cases where data is not an issue, other impediments have persisted. The Essential Guide t o Day-to-Day Category Management
  15. 15. IfGmpry managemcntisa bigstep inarelationship betweena retailer, towards comprehension andjoin+ business. If a Management will con MonoKanm-Souse Unwillingness of retailer: Given the operational constraints and pressures under which retailers may be operating, it is important for suppliers to be prepared to take on a more proactive role and offer to provide operational support.A retailer who is focusing on building critical massthrough opening new stores in an emergingmarket, may find itself dealing with thecomplications of ensuring product availability,systems operations, etc. Under suchcircumstances, category management, althoughrecognised as an effective process which candeliver significant tangible benefits, is unlikely tofeature at the top of the retailers agenda.As long a the retailer is willing to share data, sthere is value in conducting even the Tier 1analysis to instigate consumer focus and thinking. "Therealbredkthvoughwillcomewhenasimplepraces autoiwttwnaspossibletoensurethattimeand aboutbusinesswins. Valueis,dearly, NOTgathering data andfilling them IThe Essential Guide to Day-to-Day Category Management
  16. 16. IT tools to automate the processThe ultimate goal of the new solution is tointegrate category management into the day-to-day business process of the organisation. Thisgoal, however, can only be fully attained whendata capture, data analysis and performancereview are automated. Automation can beachieved using extranet solutions where theexisting proprietary tools (pricing, promotion,ranging, etc.) can plug and play into themiddleware.The goal, therefore, requires delivery of the Conclusionfollowing: The industry is currently facing significantW An automated solution, anticipated to be demand-side challenges - new entrants, web-based emergence of new channels, globalisation and Ability to link and share data from multiple consolidation. These pressures intensify the need sources and read them in a comprehensive for making category management a truly day-to- manner (including managing internet security day process, so that sufficient resources can be issues) freed up to focus on tackling the bigger issues. Ability to conduct dynamic modellingW Tracking of the category via an automated The continuum solution offers the industry full scorecard which highlights performance access to category management and thereby variations using traffic lights (red = priority, represents a breakthrough for a critical demand- amber = no issues, green = strong side process. As category management performance) propagates throughout organisations, and a s enabling conditions become more widespread in the market, it may become a routine a the s s supply-side of data sharing, which is now second nature to both retailers and suppliers. The continuum solution has been broadly sense checked through pilots, and full validation is underway. It is expected that the solution will continue to evolve, particularly with the rapid advancement of internet standards, increasing data accessibility and other drivers. The Essential Guide to Day-to-Day Category Management
  17. 17. Day-to-Day Category Managementcomprises 4 Phases:Phase 1 :Retailer StrategyDefining the retailer strategy is an annual activitywhich should be conducted by every retailer. Itidentifies the drivers of the retailers strategy andincludes a complete cross-category analysis whichallows it t o strategically manage all c.200categories. The analysis also include assigningcategory roles and allocating resources.Phase 2:Develop Category PlansThe second phase is synonymous with the 8-stepprocess, with the exception of some steps whichbecome communicationtasks, rather thanrequiring significant analyses. The 6 stages arecategory definition, category role communication,category assessment, strategy alignment,performance targets and category tactics.Phase 3:Implement Category PlansThis focuses on the communication of categoryplans t o stores t o enable effectiveimplementation. The guidelines will help t oestablish clear and concise communication so thatthe plans are actionable, and easily understoodby consumers.Phase 4:Review Category PerformanceThe final phase is a review of categoryperformance t o determine whether the categoryis meeting the targets set in Phase 2.Performance metrics are aligned with thecategory strategy, such that any significantvariance from targets will trigger a warning t othe category team. In time, the automation ofthis phase will bring Day-to-Day CategoryManagement t o life. The Essential Guide t o Day-to-Day Category Management
  18. 18. Phase / StageRetailerstrategy 0 Corporate mission a Total group & target Target shoppers Strategy by formatkhannel/reg.,, stores demographics spend a Target behaviour (eg Loyalty) Retailer own label strategy * Total shoppers spend, basket, a Target competitors Macro space allocation by category loyalty, frequency a Target categories - a Total group residual spend roles and priorities a Categories Target shoppers Top-down opportunity penetration, spend, loyalty, basket, transaction or frequency Turnover, share and trend by category Ad-hoc needs research I .In-storeshopper research - - Strategic phase decisions Category Structure and a Prioritycategory segments deciiion tree Prioritycategory behaviour Category Role Priority for category strategy Target stores/storegroups Priority tactics Target shoppers Target behaviour (eg loyalty) Target competitors a Top downlfair share 1targets opportunity (R6) Category Role Category Asses--- - CategoryStrategy 1CaWWRote opportunity (A DriversfromA3andA4: Category Structure and T m u l a t i v e value and How many SKUs decisiontree penetrationin total and Which SKUs Ranging strategy by segment Which new products (e.g. breadth vs depth). Competitorcomparison Timings for new listings Target storedstoregroups a Target shopper group comparison and de-listings Target shopper groups Duplication, loyalty Target behaviour (eg loyalty) and usage effects Target competitors Prioritycategory segments I Prioritycategory behaviour Which m s Which SKUs to track I 1 + I Which new products (high, medium, value lines) Top Kvk I Target stores/storegroups Retailer price competitiveness Which SKUs to price promote I Target shopper Margin mix Pricing recommendationsfor -- I Target behaviour (eg loyalty) Base and promotional pricespread managing margin mix I Target competitors Competitiveness of spread 1 Priority category segments I Priority category behaviour eg. category spend, loyalty I SKU marc-- ~motion timing, frequency, Whether to oromote a Which new products volume and impacts by retailer a Which SKUSto promote Target storedstoregroups Promotion effects by SKU by type Which mechanic and how I Target shoppers on category, segment volume to promote Target behaviour (eg loyal Promotioneffects by S U K When to promote (calenda Target competitors on category, loyalty etc. Prioritycategory segments- Prioritycategory behaviour Which SKUs to price promote I How much, how often to price promote Cat Which SKUs 1 Macro space allocation m to promote Use of promotionalspace I Which new products ., profit and 1 Priority category segments 1 Which SKUs to price promote 1 How much. how often to price promoteTable 2 Summary Overview of the Prwx :The Essential Guide to Day-to-Day Category Management
  19. 19. Getting StartedThe following guidelines should be consideredwhen starting the category management process:H Secure early buy-in from senior managementW Be prepared for cultural change within the organisation as it absorbs the principlesof collaborative category management I Solicit clear agreement between partners/adviserson the long-term role of category management in growing the business profitablyW Choose receptive partners, who are prepared t o take on the risks and responsibilities involved and are committed to implementationJ Ensure clear understanding of the process up- front Spend time to plan and communicate the process set-up. Timelines, roles and Inputs to the Retailer Stri . responsibilitiesshould be explicitly stated and The Retailer Strategy phase require a number of not assumed preliminary inputs which can usually be gleaned1Seek understanding of the category definition from the marketingtstrategydepartment: and structure early, and feed the information to market informationcompanies to ensure timely Cofpofotemissic data release Corporatestrategy- Retailer-labelstrategyOnce the category management process is W Macrospace allocationunderway, it is important to bear in mind that the H Supply chain strategybenefits of category management are not accruedfrom completion of data templates or by These inputs are critical for ensuring that theundertaking lengthy analysis, rather by drawing strategy and the subsequent categoryout the insights, thinking outside the box and are aligned with the overall goals of thefocusing on the consumer at all times. Flexibility organisation. Once the information iand creativity are both critical factors for success. typically in a day workshop, the RetailSome useful guidelines are offered below: phase can begin. The activities in this phase will usually be run by the same function which is Dont throw-away a template or analysis responsible for pulling together the preliminary which is partially completed because it can still inputs. provide some insights on the categoryH Where there are holes and/or no data, be Note: When undertaking analysis, some companies creative In answering the key businessquestion are likely to have access to other data, e.g. ad-hoc (e.g. no category definition for office stationery and consumer data. Wherever appropriate, data can be worked around by an audit of the office findings can be fed into the analysis to provide stationery cupboard). The key is to be creative additional insights. The question of whether to use and resourceful such data depends on whether the analysis is simply a security blanket or genuinely adds to the overall insight. It should only be used in the latter case. .. 4 Some retailers will group stores to allgn strategy in light ofpefformance vanattonsm The Essential Guide to Day-to-Day Category Management
  20. 20. IPHASE 1
  21. 21. Phase IRetailer StrategyThis is an important new phase - a significant Six key business questions must be answered.addition to analysis in the 8-step process. It is They prepare the retailer for establishingrecommended that this phase is conducted, collaboration and communication with itsirrespective of the tier on the continuum. It suppliers so that the suppliers plans for theconcerns positioning the retailer within the category can be aligned with the overall strategiccontext of the market identifying the macro direction of the retailer.opportunities, and thus allowing the retailer tomanage its portfolio of categories within astrategic framework.This analysis should be conducted on an annual Rl. Who are the retailers target shoppers and isbasis by a dedicated strategic or marketing group. the retailer reaching them?This group must have the commitment and buy-inof senior management to ensure that the findings The retailer can determine:and conclusions form the foundation for the Target shoppers by identifying the nationalretailers category management process and demographic patterns versus shoppertherefore are able to secure the required demographiaresources from the entire organisation. If it is reaching target shoppers by - analysing penetration rates - comparing their spending through the retailers store against their total average spending Outputs Under and over-representation for current and potential target shoppers Insights1 Identify target shoppers: Recommend- - Option 1: Choose existing over-represented shoppers ations - Option 2: Choose currently under-representedshoppers as oppartunities for focus Additional Year-on-year comparisons to demonstrate where the retailer is winning and Analysis losing in the market. -. Regional variations where appropriate Major demographidconsumer trends in the market rhe Essential Guide to Day-to-Day Category Management
  22. 22. Template R1 (Data at National Level) cio demographicgroup Coartiy%oflwBehol(b Ccnnby%ofspending RetcMle?%ofhouseholds Retailer%ofqm& arson households -- . . xrson households xrson households e person households I household groups vel of affluence e styleN.B. This and all subsequent templates can be found in Appendix 111, and on the EOT website - L ,The Essential Guide to Day-to-Day Category Management
  23. 23. R2. Why are the target shoppers a total storeopportunity for the retailer?The retailer can determine if target shoppersoffer a total store opportunity by comparingagainst the national average, the followingfactors: Number of categories in the basketB Average basket valueW Average number of facias visited Average frequencyOpportunities exist in areas where the retailersperformance is below that of the nationalaverage. - If the average basket is low in value versus the national average, the retailer may choose t o focus on increasing spend either through larger pack size or increasing the number of items in the basket - f4 the frequency is low but the number of facias visited is high, the retailer can bcus on persuading target shoppers t o switch This analysis can also be used t o verify if the retailer has chosen target shoppers * .Y y ;, ; correctly and whether they present any opportunities id Additional Indexes (to show relative strengths) Analysis Trending data and rankings (of total turnover and average basket t o assess market attractiveness) Eer 1 analysis - A qualitative w i e w of s h o p p in terms of b a s k spend or sampk stort ticket analysisyexit surveysy omnibws mrveysy etc., can p m k h im& into the areas of opportunigTemplate R2 Target socio demographic Groups from R1 indexed versi National Group1 Group2 Group3 The Essential Guide t o Day-to-Day Category Management
  24. 24. R3. Who is the retailers competition for targetshoppers?The retailer can determine the competition for itstarget shoppers by understanding:W The amount of lost expenditureW To which competitors residual spend is being lost, i.e. where the shoppers are also shopping - by consumer value (primary/secondary/tertiary) and consumer spending (heavy/medium/low) of this threat Potential opportunities: Recommend- - The primary shopper who shops in a superstore and at a discounter may be getting hisher basics/essentialsat the more price competitive discounter. In order to gain more of hidher spend, a focus on value pricing may be effective for the retailer - The primary superstore shopper who also shop at tfw high street stores is likely driven by convenience. Hence, meal solutions and home shopping m y represent a opportunitiesfor increasing hisher expenditure Additional Trending to show changes in primaryheavy user shifts Analysis Linking R1 and R3 and further analysis to check if heavy users, to highlight whether a gap exists or the retailer is already on track Tracking of over and under-representationof residual (versus fair share) A series of matrices t o review distribution of stores, in of overlap alJxythTemplate R3 7 rnnsiimer valiie ftniiatinn fnr retailer 1 Cflnsiimer ifnendinn at retailer retailers Nor- buvers Retailer total All other stores Competitor A Competitor B All others TotalThe Essential Guide to Day-to-Day Category Management
  25. 25. R4. What opportunities exist to improve positionagainst key competitors?There are 2 options t o determine whatopportunities exist t o improve a retailers positionagainst key competitors: Option 1: Based on value share Option 2: Based on sales dynamics Option 1 : By comparing the composite measures for value share and identifying the competitor that is most similar to the retailer, as a proxy, improvements in penetration, loyalty or spending can be used t o estimate the revenue improvement opportunity. where Penetration = No of households buying at the retailer Loyalty = % of retailer shoppers spend at the retailer Spending Index = Spending of retailers shoppers compared t o average spending N.B. Household panel data is critical for this analysis. An example, Template R4 Value Penetration Loyalty Spending index share % of h/h buying at ret % of spending retail Spending of buyers compared 1 buyers spend at retailer Ave spending (derived from other figures) Retailer X % - Competitor A 8.2 48.7% 16.0% Competitor B 7.6 56.1% 12.1%I Competitor CI Competitor D I Illustrative Figures Size o f Opportunity: If Retailer X has 7.5% value share which generates a revenue of Euros 3.55 billion, and believes that it most resembles Competitor A, then if it is able t o increase frequency of shop visits, thereby increasing loyalty by 1%, this will represent an increase of 0.6% value share which is equivalent t o an additional Euro 0.28 billion in revenue. -- --f Option 2: By understanding the composition of sales in terms of frequency of visits and average basket value, the opportunity for generating additional revenue either by increasing the frequency or by boosting the average basket value, can be quantified by comparing the 2 factors t o national averages. I t a l retailer sales = (No o f shopping trips) *I nsaction value) where No of shopping trips = No of shoppers who shop in retailer * Frequency of shopping Transaction value = Average basket value N.B. Retail scan data, market data or household panel can be used t o drive this. The Essential Guide t o Day-to-Day Category Management
  26. 26. - Outputs Option 1: penetration, loyalty or spending (based on the output from R2) Option 2: t. -f - -;.: .- Ef,4.n.-c~-s-- % *. - I - Presents a view of the &portunity, in terms of attracting new shoppers, i.y - Presents a view of the opportunity relative t o competitors, in terms of increasing - w-id- 1 I increasing frequency or increasing basket size (aligned with output from R2) benchmarked against market level Insights1 An assessment of the impact on the retailers sales based on the chosen - . - 4 Recommend- opportunity for focus: -J ations - Increase value share through increasing penetration, loyalty or spending ,; ;, A - Increase sales through attracting new shoppers, increasing frequency of shopping or increasing average basket value n Additional Trend (identifies which metrics are good in absolute terms, but may be a concern, Analysis - 1 because of trend direction) ______ICaveat - The wlue shardmarket value figures are likely to vary from one source to another. There is no need to try to resolve the discrepanciesas theanalysis is only meant to illustrate the magnitude of the opportunity. r^ LO-R5. What are the strategic categories in themarket and for the retailers target shoppers?Retailers who want t o successfully capturebusiness benefits must deliver on strategiccategories, i.e. those categories which areimportant t o the market and t o their targetshoppers. A retailer can determine the strategiccategories for its target shoppers in the totalmarket by:W Developing an understanding of which categories are being purchased in the marketH Where possible, further refine the analysis t o take into account of the retailers target shoppers (from Rl), and hence t o identify strategic categories for these target shoppers. Only the top 20-30 categories are usually considered in this analysisTemplate R5a looks at the market as a whole,and template R5b looks at just the retailerstarget shoppers.The Essential Guide t o Day-to-Day Category Management
  27. 27. 1 Outputs 1 Importance of categories t o the market Importance of categories t o target shoppers Under and over-performance of retailer across categories Recommend- A view on which categories require increased focus, and where the opportunities are, for the retailer in terms of overall category frequency of purchase and size of the market Share of volume, heavy users, size of market and growth data can be plotted on the x-axis The analysis can be performed by zonehaion (for the more sophisticated retailers and data rich countries) Determine where (which categories) thi tailer under and over-performs relative t o the market, in terms of expenditure and frequency Understand why the retailer under and over-performs in those categories by :*- categories - examining the target shoppers needs and see if they are met average yearly . .ousehold I spend + *equency (as a measure of traffic). .,-re 3: Ã. ..Jrn template R5a ‘Figure 3 illustrates which categories are importantin the market. As a first step, the retailer willdetermine its key categories based on retailerstrategy - e.g. if a high street proposition, theretailer should focus more resource on shoppingbehaviour 3. Alternatively, a petrol station storewill focus more resource on categories importantt o shopping behaviour 1. The Essential Guide to Day-to-Day Category Management
  28. 28. The second step, where data allows, identifies which categories are important t o the retailers targetshoppers. This illustrative example of template R5b also shows how the demographic spend, indexedagainst the national, can be combined t o produce a ranking. It shows that the heavy spending on wineof all of the target demographics means that it is likely t o be an important category for the retailer.Example of Template R5b I 2 persons household - Spending index: demographic v national ABC 1 s I x rank Wine - 1 55 138 133 1 Fish 139 140 129 128 2 Spirits 148 112 130 130 3 Lamb 123 114 128 128 4 BeefNeal 120 98 141 141 5 Butter 117 109 138 128 6 Fresh chicken 110 124 116 116 7 Fruit Juices 100 126 111 Ill 8 Coffee - 4 A/" 128 128 9 Bread 171; 171; inIllustrative figures I Spending index demographic vs national 1 I Low High Purchase frequency ,, . a .Figure 4: Graphical representation of R5bThe Essential Guide t o Day-to-Day Category Management
  29. 29. R6. How should the retailer allocate category Retailers can use the following three measures t o roles at a cross category level and thereby drive the role determinant process: prioritise resources in line with category opportunities? H Market measures H Retailer internal measures Given their limited resources, many retailers H Consumer measures struggle t o review all their categories, and hence a mechanism t o help allocate category roles and These measures can be computed using data from resources is required. This key business question different sources, however, it is important t o note answers: that the quality and robustness of the data is a key success factor in this analysis. No doubt, the What is the role and priority of each category? sources will differ from one retailer t o another, What resources should be allocated t o each from one country t o the next. Each measure is category? weighted according t o the overall corporate What is the (high level) fair share opportunity? goals. Market Measures How important is each category in the market and t o the retailer (building on R5b)? Importance of the category can be ranked, depending upon corporate strategy based on its: falue share % falue (absolute) Aarket growth (year-on-year) ietailer growth (year-on-year) +I- nclyllully I Value Rank mm---l Value Rank Market year-on-year Retailer share change Total Retailc m Category A Category BI N.B. The market data is derived from retail scan data Retail Internal Measures How profitable is each category?The importance of the category can be ranked based on its margin and contribution t o profit. This measure is particularly important when the retailers objective is driving profitability. I Category margin - Piofitcontribution 1- Rank contribution Weight Total Retail Category A Category B The Essential Guide t o Day-to-Day Category Management
  30. 30. ansumer Measures: ow important is each category t o the target shoppers (from R1) and where is the opportunity (building I R2 and R4)? i i s analysis can be calculated in at least three different ways depending upon data availability and tailer preference. Where a market can provide robust household data, the categories can be ranked using: - Penetration against the market - Loyalty index - Spending against the market -The above, weighted for target shopper group(s)".."yTotal RetailerCategory ACategory B A complementary analysis can be conducted using retail data or household panel using the following metrics: - No of baskets with category - Transaction size with category - Annual spendWeighting - dumber of baskets with categv Rank bN Transaction size vTotal Retailer I Shopper focus groups and exit surveys/omnibuscan add insight on the importance of categories to target shoppers A third complementary analysis (building upon Option 2 in R4) determines the all the categories sales and profit based on: - Total number of shopping trips - Number of shopping tripshaskets that contain the category - Value transaction size (basket) - Gross margin This analysis is particularly helpful when determining the generic store opportunities of: - Traffic building - Increasing spend (basket) - Profit generating Retailer dataTotal RetailerCategory A = #of snooping ________I trios value transaction Retail sales value size margin Actual profiiCategory BThe Essential Guide t o Day-to-Day Category Management 33
  31. 31. Based on the ranks for the category within eachmeasure, category roles can be allocated in apragmatic manner - see Table 3.1 Role Key Performance Metric OO / of Categories Destination Sales Value +lo% 5-10% of categories rn Convenience I Sales Value 0 +5% Over-trade 0 +5% Sales Value 0 - 5% Over-trade 0 - 5% I - 70%-80% of all categories 10% of all categories Table 3: Role allocationThe resources allocated to each category are Note: In the early stages of using this template,driven by i t s role - in principle, destination there are likely to be some inconsistenciescategories are usually allocated more resources. between the market, the retailer and the supplier category definitions (i.e. SKUs which make up theThe result of this template quantifies the tangible category definition). Nevertheless, the use ofbenefit of each category and hence becomes the standard market definitions (from market"top downm target for the forthcoming year. information company) will allow retailers toHowever, these top down targets (based on fair generate insights in a manner which previouslyshare) may require adjustmentdre-evaluation at has not been possible.the Category Performance measures stage when adetailed "bottom upn approach projects the morerealistic opportunity. Outotfts Insights1 Recommendations - - - Prioritisationof categories according to: - Cross category ranking based on market, retailer and consumer measures High IevelIFair share opportunity gap Their importance to the business in growth, value and profitability In how they match target shoppers* needs How they are able to fill a loyalty, penetration or spending gap i l (with weightings according to importance to the business of each factor) - How they perform in terms of basket spend, category conversion and frequency (depending upon data availability) Pragmatic allocation of roles Prioritisation of resources across the categories Additional Analysis N.A.=*F-?xm g2 ,* 1 Tier 1 analysis may only access (I) internal data for turnover andprofit with changes year-on-year (or sampletransaction data), and. (2)a q d t a t i v e consumer assessment. Ideally the turnover will have someform of market b e n c h & Nntees this analysts oebls, allowsantaiUrtounden~atamacrolei^whichcatep^u~drivingthe~s 1 and. therefore holes to ~racticallypnO~tise resowee. The Essential Guide to Day-to-Day Category Management
  32. 32. Next StepsThe following table should capture the insightsand actions from the Retailer Strategy phase: R1. Who are the retailers target shoppers and is the retailer reaching them? - opportunity for the retailer? R3. Who is the retailers competition for target shoppers? Â Â key competitors? R5. What are the strategic categoric- ... -..? market and for the retailers target shoppers? Â Â R6. How should the retailer allocate category roles at a cross category level and therefore prioritise resources in line with category nnnnrtii n i t i o c ?Table 4: Summary output from the Retailer Strategy phaseThe output of this phase is a clear strategicdirection (which includes a cross category roleallocation and resource prioritisation) for theretailer. The outputs should be presented in aseries of workshops t o both: Senior management (for buy-in and commitment t o the recommendation and vision) Category management/commercial and . marketing team t o ensure the alignment of strategy and category roles for the forthcoming yearThe Essential Guide t o Day-to-Day Category Management
  33. 33. PHASEDevelop Category Plans
  34. 34. Having identified the category roles and allocatedresources to each category at a corporate level,the category managers will commence work oncreating a category plan.At this point in the process, a category managerwill also determine which supplier helshe wantst o appoint a the category adviser, based on a snumber of factors, including: What is the suppliers historical &cord on new product development and introduction? Can the retailer work with the supplier? How much support will, and can, the suppliers provide on promotions for the retailers target shoppers? (where relevant.) Are they collaborative?Up-front planning - - . L " -& ^ i. !; +, $-.Once suppliers have been identified, joint The activities will aim to establish the following, -preparation for the development and before or during the Category Plan development:implementation of the category plan shouldideally begin. Traditionally, such implementation- Gear assignment of roles and responsibilitiesrelated tasks are often identified during the Clear timelines for each stage of the process,implementation phase. However, this has caused from strategy through t o implementation andmany companies to fail during in-store ongoing reviewimplementation. Therefore, the Day-to-Day The requirement for flexibility and thereforesolution has incorporated the up-front focused analysis, e.g. at store level, while someimplementation activities into this phase. retailers are centralised, others can be . - - decentralised -. Commitment to implement f r h senior * 2 management through to store level , - 1 G ~ & n m e n tof store managers goals with HQ - *ategy  Involvement of cross functional teams (Including merchandising, store operations and logistics) at relevant times There are many ways to structure the team, and their roles and responsibilities, so companies are encouraged to adopt a flexible approach. An example is given in Figure 5 The Essential Guide to Day-to-Day Category Management
  35. 35. Category Management DireCtOtfFaCilitati SUPPLIER I ! orporate Categor epartme ProVIde resou lanaaement Leadi Director and imn*- Cxecuti Lead the tetailerrtrateavII developpent -- A *I ;vow!!!:?r-mm~letion tes I Main co - Lead development of the * a;v&;& flwibUBnesptan ---I- --.-=-. Buyer JIIUJ~LI analyst her expertise * Subject n i c i.. i. . iw I 1 lead impiementaion & expertise review phase *Analytical su port 0 onsibie s for inter collection Ldiey". Specialis matter expertise ,/ Potential Resource Requirements: store Management Sup ly Chain Expert IT Expert MerchandisingIDesign specialist Financial SupportFigure 5: Example Roles and Responsibilities * -£ac partner in the categary management relationship has an In order to develapapdbusinesspUn, w e n d t o bringthis mfv Kieran Hemsworth, Coca-Cola. t. 3- The Essential Guide to Day-to-Day Category Management
  36. 36. Example Timeline . A;- È to ww-wThe following timeline provides a guide for the Day-to-Day process. However, it is only illustrative,company and/or market circumstances may enable quicker, or require longer, time requirements. iler Strateg up-nun riaii~~InCJ Determine Appropriate CM model to guide process Assign Roles and responsibilities Draft timeline and set milestones Develop Retailer Strategy Collect Inputs: mission, strategy eti Define data structure and submit r G Review findings-3 -figure 6: Example Timeline - - - Phase 3 and 4: Implementationand Review ongoing The Essential Guide t o Day-to-Day Category Management
  37. 37. areasfoil CATEGORY PERFORM; > CATEGOR DEFINmOt MEASUf 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 -. - Â ¥; I3. 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 segments 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; Category Tactics 1 To determine how to reach consumers through range, pri promotion and merchandising The Essential Guide t o Day-to-Day Category Management