It's time for a change

By Jim Wisner

There has been a lot of noise recently about the advent of Category Management 2.0. Category management, as we have grown to know it, was originally launched more than 20 years ago with great fanfare and promise.

Ultimately, it was adopted as the de facto approach to merchandise management at nearly every leading retailer in North America. Two decades later, looking at this version of category management still being used at many retailers is like looking in your refrigerator and discovering that everything is about to go out of code.

There are six key problems associated with today’s category management approach:

1. It gives little attention to store brands. This issue is not new. A store brand traditionally was simply another brand within the category, and it was assumed that it should follow the same dynamics as every other brand — which, of course, is not the case. Further, store brands were presumed to have a monolithic quality about them — all were presumed to be imitations of the leading brands in each category, simply offering some additional gross margin for the retailer. Store brands’ role in building consumer loyalty and enhancing return on assets was not explored.
2. It wasn’t designed for the digital age. Omnichannel, virtual stores, click-and-collect and digital retailing were never really envisioned in a system designed for a brick-and-mortar environment. Today, it’s not the shelf but perhaps the screen that matters more. Category Management 2.0 intimates that it will address these issues, along with the promise of better data and a host of new insights to bring category management into the 21^st century.
3. It takes too long. The very laborious process for reviewing each category is inconsistent with the number of personnel and amount of resources available at most retailers. In too many cases, by the time a category review is finished, the category itself may have completely changed. There has been no real mechanism to adjust “on the fly” to rapidly changing consumer needs.
4. It can invite a Trojan horse. Many of the large consumer packaged goods (CPG) companies embraced category management as an opportunity to impose their perspective across the retail community. Becoming a “category captain” was often used as a license to undermine store brands. Even when not done consciously, a lack of knowledge about store brands could result in their diminished importance in the category plan.
5. It looks mostly to the past. The entire process was designed to assess what had happened, with an underlying presumption that any trends would continue into the future. A “one-size-fits-all” approach to optimizing the category also has the effect of genericizing it. As a result, it moved most retailers down a common path and minimized differences between competing chains. Lost in this scenario were the opportunities to change consumer behavior through pricing, shelf space or promotion and to move consumer preferences in alignment with products that are more unique or profitable for the individual retailer. It has been a passive system.
6. Categories take precedence over shoppers. Assigning set “roles” for each category may not work so well when each category may play a different role with each shopper. Shoppers were far more homogeneous 20 years ago, and it was easy to target the “typical” shopper. Today, demographics, lifestyles and attitudes surrounding every product category are extraordinarily diverse. Efficiency and effectiveness can get confused. Finding ways to address the individual needs of each shopper across categories needs to be the focus.

So now what?

Category Management 2.0 promises to address many of the new market realities, including shopper marketing, omnichannel retailing and channel blurring, along with dramatic changes in both demographics and shopper attitudes. New data and sophisticated analytical tools will give retailers a much greater ability to manage and manipulate performance within each category. These changes are all great, but there has still has been no mention of how store brands (which are exponentially more important than they were 20 years ago) will become part of the process. Will retailers simply deal with the same shortcomings, only more efficiently? Here are four things that need to happen:

1. Store brands need to be a significant part of the process. If category management is about improving retailer performance, store brands offer far more promise than any national brand (which can be differentiated only with price). Store brands must be incorporated into the new model.
2. Retailers need to think across categories and departments rather than merely within categories. Many new store brand products and brands have emerged in recent years. They include lifestyle products, “health halo” products and brands, brands targeted at children and infants, specialty cuisine, and any number of other niche items. All of these require a unified approach as opposed to one that is unique within each category and siloed to the whims and preferences of individual category managers. How this approach is achieved organizationally and managed within each retailer is perhaps among the greatest challenges for retailers going forward. Most store brands are ubiquitous across categories and are often influenced by activity in other departments. For example, a new line of cuisine-focused grocery products can be minimized if the fresh meat and produce components are not also part of the discussion. This discussion is outside the typical category management process, but needs to be a part of any modern merchandising strategy.
3. The new process must be proactive. Simply responding to consumer needs is not enough. Category management should be proactive, not passive. It should be used to create new consumer needs with innovative products and approaches that drive profitable purchases, rather than simply optimizing past behavior. Successfully applied, Category Management 2.0 can define new opportunities within and across categories, with new brands, new product groups and new items that excite and delight shoppers.
4. Store brand training needs to be emphasized. It is amazing how many retailers have invested so much money in category management training without providing similar investment in their own brands. The newer organizational style has moved to separating store brand development from category management. Organizationally this has some advantages, but can wind up with category managers working at cross purposes to their own brands. If category managers are incentivized primarily on sales rather than profits, then why not emphasize national brands?

A store brand component needs to be a part of everyone’s goals. The need for increased training and an understanding of the strategically and financially important role played by store brands is evident at every level of the business. The entire organization needs to be on the same page about its brands.

Category management is about to enter a new age. If it moves forward without recognizing the dynamics of store brand management, then it won’t have moved forward at all.