Category Management still a Delicate Balance

by Laurie Russo
Category management, that sometimes confusing and labor-intensive process of combining elements such as promotions, space management, pricing and merchandising to form a successful retailing strategy, is constantly evolving. A recent report from Cannondale Associates, titled Consumer Marketing at Retail 2004: Category Management Benchmarking Study (Differentiation), compares the views of manufacturers and retailers on the subject, and how they each believe they can best differentiate themselves from their competitors.
The latest approach, Consumer Marketing at Retail (CMAR) is more “results-oriented, [and] positions the manufacturer as the insights leader and enables the retailer as a marketer,” according to the report. Collaboration — leveraging the strengths of trading partners to create better solutions for consumers — is seen as crucial. And while retailers are advised by category management experts to take advantage of the wisdom of category captains, that may only be half the battle.
Take, for example, the matchless expertise offered by Anheuser-Busch and Miller Brewing Co. in the domestic beer category. Tom Fox, a partner in category management consultancy firm CM Profit Group, says, “Category management is born out of the idea of 'win-win,' so I don't think it's a bad idea that A-B and Miller want to help the customer, but at the same time help their portfolios...that's what you could expect from any company.”
But what needs to be understood, he explains, is that “A-B and Miller are doing a fantastic job of helping retailers, but it's important to recognize where that help is positioned — primarily in the premium and below-premium segments.”
The smart retailers, he says, are the ones who take advantage of that expertise, but also collaborate with the import and high-end suppliers to learn how to maximize sales of the brands in those segments.
“A big part of category management is collaboration, and I don't think many retailers do that very well. They listen to category captains and think they're getting a full-service message, but they may not be,” he says.
According to the Cannondale report, consolidation has “homogenized many smaller retailers, Wal-Mart's growth has challenged other retailers to redefine their point of difference, and channel blurring has led retailers to compete across so many different formats that the concept of 'channels' is becoming obsolete. All this creates a greater need than ever for retailers to find a unique position to hold in shoppers' minds.”
Fox concurs. “Category management continues to live today because the channel blurring and consolidation in the marketplace are demanding that retailers have a better focus on who their target consumer is,” he says. “If you're going to survive, the process demands that you understand whom you're trying to attract.”
The Cannondale report illustrates the five steps of CMAR that contribute to the differentiation of manufacturers and retailers alike, using examples from respondents, over half of whom said their CMAR efforts were differentiating them “very well” or “extremely well”:
- Differentiation through issue identification: A major grocer retailer/wholesaler is working on a revised store footprint, after sessions with manufacturers indicated that they were following “conventional wisdom” at the expense of shopper convenience.
- Differentiation through research and analysis: One manufacturer used a retailer-specific attitude and usage study to identify means of building its category sales, enabling it to enhance its position with the retailer as an indispensable thought leader.
- Differentiation through action translation: A manufacturer decided to commit itself to putting to use its large quantity of unused consumer and shopper learnings by translating key insights into retail action. Presenting consumer-based rationale for its category solutions differentiated this company from its competition.
- Differentiation through execution: Recognizing that a new shelf-management system would have maximum impact only if fixtures and signage to “reinvent” the category for shoppers were provided, one manufacturer restored growth to a stagnant category, thereby catching the attention of both retailer and consumer.
- Differentiation through performance monitoring: One department of a supercenter chain placed a high priority on testing new concepts in the shopping experience, and the constant monitoring/ implementing of the results in real time by category managers have led to much-heralded fact-based decisions.
Then, says Tom Fox, you have to think of what kinds of services you can provide to cater to that target shopper. “You're fighting for that shopper,” he explains, “and you have to figure out how you can get them to drive by a Wal-Mart to come to your store.”
According to the report, retailers see customized programs and assortments and improved shelf layouts as the way to go. Manufacturers, for their part, view consumer/shopper insights and a collaborative approach as the best way to snag their customer, the retailer.
Manufacturers should figure out ways to present your message differently, Fox recommends. “Cut through the clutter; be objective. One of the fundamentals of retail sales effectiveness is to position your message as to how it helps the retailer, not your portfolio.” Those suppliers that are segment/category/fact-based vs. brand-based, and do it with frequency, he says, are the ones that are consistently at the table.
Other top issues for both sides, according to the Cannondale report, are execution at retail and new products. But while manufacturers and retailers agree on many things, opinions diverge sharply on store brands, with 77 percent of retailers rating their importance as “very/extremely” valuable, as opposed to 46 percent of manufacturers. And when it comes to results drivers, 79 percent of retailers rate “consumer foundation/understanding” as important, compared with 96 percent of manufacturers. This, says the report, reflects retailers’ “growing frustration with the quality and level of consumer insights” brought to the table, or generic information that does not translate into account-specific retail action.
Once both sides find that balance — with the help of category management — says Tom Fox, “they'll not only survive, they'll thrive.”