Al Heller
Co-author
Consumer-Centric Category Management

Created by ACNielsen and published by John Wiley & Sons, the book explores both the state of and the state-of-the-art in category management. Written for both novices and seasoned pros, it covers the eight-step process and case studies from leading manufacturers and retailers. Consumer-Centric Category Management is available now in most major bookstores and from Amazon. Discounts are available for orders of 10 or more by contacting Jeff Gould at Wiley (201/748-6306).

You’re a jelly manufacturer in a jam. The four flavors you launched last summer are cannibalizing sales rather than growing the category at a Midwestern grocer.

You’re a peanut butter maker in a sticky circumstance. Your low-fat entries haven’t enticed enough shoppers at a specialty chain whose image relies on the healthful varieties it offers.

Or you’re a bread baker with a crusty customer, who claims your low-carb sales tanked with the latest diet trend and you therefore deserve to lose facings of your entire line. They feel you should know your customers better, anticipate their preference shifts and innovate appropriately.

There was a time, not long ago, when such issues sliced brand relationships with retailers. When fact-based decisions weren’t common because data was too hard to probe and intuition ran freely. When manufacturer sales representatives had few insights to share about their own brands’ consumer research, only because they weren’t told. When retailers would rather dictate to suppliers than collaborate, and believed they could optimally manage categories through their limited view of their customer base. When suppliers made blatantly selfish moves at the shelf to help their brands and hurt others, hoping they’d benefit and not be found out.

To be sure, these still happen regularly, but they needn’t prevail anymore. With today’s category management a more evolved and custom process than its start more than a decade ago, it has become vastly more possible for trading partners to analyze, strategize and execute quickly and precisely against goals.

Today, the peanut butter, jelly and bread makers—regardless of their size or sophistication—can apply at least some elements of category management to keep such situations from arising, or deliver productive consumer-centric solutions that lift performance and raise them to a new plateau in the eyes of retailers.

Memories of early difficulties undertaking category management are giving way to new positive experiences. Despite detractors who declare category management dead—the victim of its own complexities and irrelevancies—98% of retailers and 89% of manufacturers regard it as a “critically important” core business practice, according to the 14th Annual ACNielsen Survey of Trade Promotion Practices.

It took pioneering efforts by The Partnering Group, Coca-Cola, Procter & Gamble and other industry leaders to secure the initial foothold for category management. However, by now, the trade has pounded the process like butchers on a veal and shaped it to their needs. Some carved the traditional eight steps into five or six, and stuck with the objectives of the original version.

Others have rearranged the sequence of steps. Financial Scorecard targets (Step 4) were traditionally set after Category Assessment (Step 3). Now some companies establish their fiscal goals first, and then they assess to identify gaps and determine strategies and tactics that can help reach targets. Others dropped the scorecard until later in the sequence, contending that financial targets cannot be set accurately until the other steps are completed. Clearly, the traditional eight steps have become more of a starting point and less of a standard.

Moreover, major manufacturers have a sophisticated suite of applications that any executive can use effectively—including consumer insights from ACNielsen Homescan and Spectra—which sales teams can share on an account-specific basis with retailers.

As a result of these changes, today’s overall process is tighter, quicker and more actionable, data-driven and executable than ever before. Consumer-centric category management is the state-of-the-art method to direct category approaches.

What follows are capsules of the traditional eight steps from the new ACNielsen book, Consumer-Centric Category Management, written from an innovative perspective that CPG and retailers can take control of the process and modify it to their individual needs, and once they do they’ll see how malleable and performance-lifting it can be.

Walk Through the Initial Eight Steps, Create Paths to Greater Performance

Step 1: Define the Category Based on the Needs of Your Target Market
Two components comprise this step: Market Structure and Preference Segmentation. Market Structure identifies product traits that define a category’s structure. It also establishes the hierarchy of product traits that drive household purchases, and it explains the competitive relationship between products. Preference Segmentation divides the market into distinct groups of households with similar purchase patterns.

Once based on surveys, research today is based on actual consumer purchase behavior. Household “panels” record what they buy with in-home scanners, then download their purchase data to third-party market researchers for analysis. Patterns emerge over time, revealing the product traits that drive consumer purchase decisions.

Market Structure and Preference Segmentation convey an accurate picture when examined in tandem. The definition they lead to must be precise to be effective, and it must encompass all the product forms, flavors and brands to meet shoppers’ needs on a variety of occasions. A definition may last as long as a year before a retailer has time to revisit it.

Step 2: Assign the Role
Four introspective questions create the right context for assigning roles and managing categories:

• How important is the category to the consumer? (Look at household penetration, purchase frequency, annual spending and degree of loyalty.)
• How important is the category to the retailer? (A distinct approach will differentiate, so how does it reinforce identity and strategy? Examine volume rank within store or department, growth trend and seasonality.)
• How important is the category to the retailer’s competitors? (See volume rank and trend in other stores.)
• What is the category’s outlook in the marketplace? (Examine overall growth, new targeted opportunities, and impact of factors such as new brands, benefits or packaging.)

With the right coordination, retailers can leverage the hundreds of categories they carry to maximize total-store appeals. With individual roles or purposes, chains manage each category to the importance held by consumers and convey greater consumer value. They also maximize return on invested resources—their own and suppliers’—by efficiently and intentionally allocating shelf space, marketing dollars and manager time.

Step 3: Assess the Category to Find Opportunities for Improvement
Scrutinize the category—as well as its sub-categories, brands and items—to determine their potential for generating growth. This is the leap from what is to what could be, to target and fill opportunity gaps, and raise categories to new performance levels. This step also provides the foundation for strategies and tactics.

Retailers can do this on their own, but typically they rely on suppliers’ deep insights of who their consumers are and how they buy and relate to their brands and the category, as well as their tracking of the market and category trends.

The likeliest place for the process to bog down is here, unless category managers focus on the right questions surrounding consumer needs and purchase behavior: The consumer perspective (who shops the category, how, where and why) is one of four prisms through which category managers assess. The other three are the market (to benchmark against competitors and the total market); the retailer (pricing, profitability, item movement and shelf placement), and the supplier (history of logistical, marketing and promotional performance, and future support of their brands).

Step 4: Set Performance Targets and Measure Progress with a Category Scorecard
This tool establishes metrics to take a category where you want to go (role) from where it is (assessment). Designed well, scorecards monitor performance and highlight strengths and weaknesses. Measures may include sales, profit, return on investment, market share, turns, GMROI (gross margin return on investment), penetration and more.

Some retailers are developing scorecards around their “top shoppers”—looking at retention level, satisfaction rating and purchase frequency. By linking with third-party household panel data, a chain can see how top shoppers shop its stores vs. competitors’, gauge share of wallet and depict more accurately a category’s potential.

Unfortunately, many more skip the detailed analysis of the scorecard—at great peril to their plans. To save time, they move ahead and enter the next business cycle without checking results against targets.

Step 5: Create a Marketing Strategy
This step draws the overarching picture of how to achieve the category role and scorecard targets.

Seven common marketing strategies prevail at retail today: Traffic building. Transaction building. Profit generating. Cash generating. Excitement creating. Image enhancing. Turf defending.

These can exist at the category, sub-category or brand levels. They can also guide uniformly across all stores, by store cluster, or on a store-by-store basis.

To be effective, marketing strategies must never waver from their focus on consumers. Essential to their success are insights into how shoppers view their stores so chains can manage categories that best meet their needs. Product supply strategies are also key because they reduce costs while doing much to ensure that the products consumers want are in stock.

In today’s environment, the onus is on retailers to open their minds, and on manufacturers to rein in their self-interest. By agreeing to specific performance goals, both sides can link their fortunes and create positive, productive collaborations.

Step 6: Choose Tactics for Category Assortment, Pricing, Promotion, Merchandising and Supply Chain Strategies
Tactics support a chain’s overall go-to-market strategies, and literally change how consumers experience categories and affect category performance and store image.

Assortment, the most tangible part of the category to consumers, serves as a mainstay differentiator. Today’s hot measure is incrementality: What is the unique contribution and value that this product brings to the mix?

Pricing is no longer just high-low or everyday low price. Some operators are hybrid, using EDLP to make an image, and promotion to generate at least 10% of volume. Others rely on manufacturers to fund yet a different strategy that rewards loyalty cardholders.

Promotions go both ways: “Show me the savings so I’ll buy” to consumers, and “Show me the traffic and sales gains” to Wall Street. Advances matter most to retailers, even though gains are short-lived. Quick fixes that excite consumers but weaken long-term price integrity, promotions can impede a chain’s ability to price-manage a category.

Merchandising or shelf presentation is so critical that it either drives purchases or drives people away. Chains must manage every detail of space usage down to product placement, realizing that footage is finite. Expand one category, another must shrink. Powerful categories, sub-categories and segments are sized right, located well and in stock.

And without addressing supply chain flows, costs and potential efficiencies, how could retailers manage categories as business units and customize them store-by-store to meet consumer needs? Particularly with inventory systems “pulled” by consumer demand, product supply strategies are the behind-the-scenes heroes of category management.

Step 7: Roll Out the Plan
Execution is in the hands of many, and that is both its power and potential pitfall. It can be mostly positive with the right coordination and training, and with clear communications from corporate through field supervision and stores.

As the category management process unfolds from a close circle of motivated managers out to the field, one truth always holds: The better store staff understands the category objectives, strategies and tactics, the more effectively they’ll execute, the more closely they’ll watch movement in their stores, and the more frequently they’ll tweak the category to make it perform better.

Step 8: Review Performance Regularly and Adjust as Needed
Set a precise schedule to measure progress of the plan and modify as needed—typically two to three times a year for destination categories, twice for mid-range, and once for lesser contributors to the store.

Recurring reviews keep categories on course. They unveil problems, lead to fast corrections, and protect the plan’s integrity.

Thorough reviews examine five areas: scorecard, marketplace, state of the implementation plan, activity recap and implications.