Digitalization has landed in the retail world. Big data places shoppers at the heart of retailers’ strategies, driving promotions and trends. That means CPG firms must offer retailers a new level of value and insights to maximize shelf efficiencies and help them deliver the shopping experience consumers expect. Amongst other things, this entails adapting category management tools and practices to align with retailers’ visions. So, what must change and what should you do to drive this transformation? Find out in this article!
Category Management Challenges in a Changing Retail Landscape
· Focus shift: from revenue generation to shopper satisfaction
Category management is taking a turn in the retail industry. In a presentation made during the 2017 Turkey Retail Summit, our sister company, Kantar Consulting, reminded that category management was first coined by Dr. Ben Harris in 1990. That means that its practice was formed at a time when the Internet was beginning to spread, and data analytics were at their outset. Since then, retail strategies have shifted from being sales- to shopper-focused, leading to what Winston Weber & Associates describe as “shopper-centric retailing.”
The switch to shopper-centric retailing impacts category strategy for CPGs, i.e. the way they wield category management and space planning for their clients. More than ever before, they must collaborate with retailers through unbiased insights to offer them data-driven recommendations. In an interview at a Retail conference in Paris in 2016, our client, Anne Aubry-Marais, Market Category Manager at Pernod France, a leader in the spirits industry, remarks:
“We don’t talk about negotiations with retailers [anymore]. (…) At Pernod, we see merchandising as a win-win relationship rather than a trial of strength.”
Now, we begin to observe a tighter partnership between retailers and manufacturers. CPG firms must produce and leverage market analyses at the category and brand levels to help their clients create personalized shopping experiences across all consumer touchpoints. To do so, they must provide retailers with tailored turnkey merchandising recommendations:
“Our category managers go meet with retailers at their national headquarters, but they also visit them at their regional headquarters and present them insights, new trends, as well as the shopper studies that we conducted. (…) Our role is to support retailer chains, which is why we incorporate all the category’s SKUs in our recommendations. So, we don’t talk about our own SKUs only, we also include competing products in our analyses,” adds Anne Aubry-Marais.
· Rethinking stores as independent business units
Digitalization enhances shoppers’ needs for convenience, which impacts the way CPG firms and retailers define their merchandising strategy. At a conference held in London in March 2018, Kantar Consulting outlined the growing role of micro-retail in the FMCG industry where shoppers visit smaller stores more frequently to purchase the products that they need at a given time. Since micro-retail is about providing shoppers with a rapid solution to their problems, it takes category management towards a mission-focused role.
That changes the way retailers and CPG businesses think about category tactics in retail, from promotions to logistics to inventory. The merchandising recommendations made by CPG companies to retailers must adapt to this new form of retailing and move from category management to store management, aligning with retailer chains’ strategies and localizing category definition based on consumers’ buying behaviors at the store level.
Considering stores as independent business units and involving them in the decision making process to adapt to their shoppers and market needs is essential to CPG firms. Benjamin Morguen, Brand Category Manager at Pernod France, explains:
“In [retail] execution, being 100% compliant with the headquarters’ recommendation is not a prerequisite for stores. Depending on the region or city, shopper habits and expectations may vary. Actually, there are many differences among shoppers, sometimes even within the same region. Rural and urban areas are also extremely different. My point is that for the same category, you can have two very different market shares. Thus, it is important for stores to adapt their merchandising strategy to their environment, and for us to take that into account in our recommendations to clients.”
Micro-retail multiplies merchandising and space planning challenges for retailers and CPG companies. They must work together to maximize shelf efficiencies and ensure every store offers shoppers the right products are at the right place, at the right time, at the right price, and in the right quantities. As CPG businesses tailor merchandising recommendations to shopper preferences according to stores, their role as retailers’ partners is crucial at every level.
What changes do you have to apply to your category management practices?
According to recent estimates produced by the Food Marketing Institute (FMI) and Nielsen, US shoppers will spend around $100 billion in online groceries annually by 2022, regardless of their demography. This number represents 20% of total annual spending on groceries in the US. It reinforces the fact that CPG businesses must collaborate with retailers to help them counter-attack pure players, and fast. To do so, they must leverage shopper data and turn their physical presence into a competitive advantage by creating shopping experiences that consumers will not find online. Concretely, it requires them to consolidate and analyze the data they collect from studies, consumer panels, field forces, data providers, and so on to redefine category tactics in retail and create unique value propositions. But, doing so requires three main changes.
1) Restructuring category management processes
There remains a majority of CPG companies that follow the traditional 7-step category management process described in the ECR guidelines for category management, namely (Silveiraab & Marreirosb, 2016):
- Defining the category
- Assigning a role to the category
- Assessing the category potential
- Establishing KPIs for the category
- Creating its marketing strategy
- Determining trade marketing tactics for the category
- Implementing the planogram
While this process helps create and implement a fine category strategy for CPGs, it focuses on business goals rather than shoppers.
Category management must now be incorporated into what Deloitte, FMI, and Winston Weber & Associates call shopper-solutions planning. Shopper-solutions planning is a model derived from the traditional category management process, so both methods describe similar steps to follow. However, their approaches are dramatically different. Indeed, shopper-solutions planning puts consumers back at the heart of the category management strategy. With an approach aiming to maximize shelf efficiencies for shoppers by “translat[ing] insights into shopping-experience-enhancement at the category, aisle, department and total store,” the model relies on a profusion of data to include shoppers in every single step of its process (Figure 1).
Figure 1: Overview of shopper-solutions planning (Deloitte, FMI and Winston Weber & Associated, 2015)
2) Leveraging data from all sources to obtain accurate insights FOR CATEGORY MANAGEMENT IN RETAIL
In order to set themselves apart from their competitors and become retailers’ preferred partners, CPGs must build data- and shopper-driven merchandising recommendations. Category managers must demonstrate knowledge and understanding of their clients’ environment and challenges, as well as their competitors’ products and positioning. Their ability to collect and cross-reference data from multiple sources is what will ultimately make their proposal valuable to retailers. We have seen this growing need at Planorama as our clients aim at combining shelf data provided by our Image Recognition solution for store checks with data from other sources.
With Image Recognition, measuring category performance becomes more consistent and reliable for CPG firms, particularly thanks to the technology’s high accuracy rate of +98% (15 to 40 percentage points higher than with manual store checks). Thanks to Image Recognition, they can objectively produce all the KPIs they need for their analyses from a single photo, including indicators to assess competition as well as insights to improve trade and promotion activities. Gartner recognizes this capability as a significant business benefit for CG manufacturers (2017). That is why more and more have started cross-referencing shelf data with other sources of data such as epos, display, or pricing data. It helps them significantly grow their understanding of the shopper and the category and make more relevant recommendations to their clients.
3) Using advanced technologies to support category managers in their augmented role
As category managers aggregate large volumes of multiple sorts of data to produce their analyses, CPG companies must provide them with advanced technologies that facilitate their daily activities. There are various solutions and applications designed to help catmans collect and analyze the information they need to optimize sales, margin, inventory, costs, and speed-to-shelf and shelf-space productivity at the category level (Deloitte, 2015). However, some can be challenging to use or may not integrate well with each other, thus making category managers’ job painful and, ultimately, less efficient. Therefore, adopting advanced technologies to support augmented category management efforts is not enough; CPG companies must ensure the solutions they select also fit their teams’ multiple use cases and usages so that they can act as enhancers. The more intuitive, user-friendly, and lightweight software applications are, the more they can deliver on that expectation. According to our Chief Innovation Officer, Frederic Jahard:
“The fundamentals of software design have shifted in recent years. Today, it is all about providing meaningful and relevant experiences to users. As category managers aim at leveraging large amounts of data, UX (User eXperience) design must be at the heart of any merchandising application development to help catmans rapidly make sense of their metrics and act on them.”
If CPG businesses do not support their teams with advanced solutions, then transforming the category management process will be tough. Take space planning, for instance. A space planning tool should help catmans build the merchandising recommendation they envision for their client within the time restrictions they are under. It should, therefore, seek to optimize their activities via the automation of repetitive and straightforward tasks to let them focus most of their time on the ones which require more expertise. At Planorama, our space planning solution, PlanoManager, was designed in collaboration with our clients to answer this need and support them as they create planograms.
Topics: category management