7 November 2017
Retail is a highly competitive environment and it attracts highly competitive individuals. Unsurprisingly, we would all like to be the best at everything – but we can’t afford to be. We have to make choices. As Marcel Corstjens of INSEAD says… “The problem is that most retailers are afraid of being bad at anything and try to hide it if they are. … You cannot have the best promotions, the most promotions, the lowest prices, the best stores, the best loyalty program, the best assortment and private label as well as the best service...”
Without a limitless budget, attempting to be all things to all shoppers is a futile and expensive exercise.
Making tough choices is at the heart of successful category management. Some categories and some marketing levers are more important in driving sustainable growth than others. The challenge is knowing how to identify those categories, so you can make choices about where to invest.
Some of these choices will be strategic – for example, “Which categories are most important – both to the business and my customers – and why?” Answering this question enables the definition of roles for each category – for example, where do you need to develop, win, control or protect.
Other choices are tactical – for example, “Where is my category today and what are the opportunities?” Addressing this question helps retailers set clear category objectives – so, for example, if we have identified that Everyday Low Price is more important than promotions in a particular category, but we are currently investing more in promotions than EDLP, then how are we planning to re-align our tactics with our stated strategy?
Finally, some choices are executional – for example, “What do I execute at a fixture and product level?” Answering this question helps retailers develop a robust category plan with clear guidelines on what needs to be actioned and when.
Now this may sound like an obvious approach to managing your categories, but it never fails to surprise me just how many retailers are still operating in silos with different categories being managed in isolation and out of sync with the overall objectives of the business. As the retail climate gets more and more challenging (and it will), effective use of resources within category management will be essential for retailers to do well.
Every retailer has 4 resources they can spend on their categories:
Every category is in competition for these resources. How they are optimally allocated should depend on the category’s priority, and this should be intrinsically linked to the overall strategy for the business.
Here is a great example of how tough category choices were implemented to drive strategic change within a retailer through the rationalisation of ranges:
To make the shopping experience easier for customers, a certain large European retailer wanted to simplify assortment and reduce range across all food categories in store, removing duplication whilst retaining market-leading products. In some categories, range was reduced by up to 30%. By focusing on customer metrics rather than just commercial metrics, this retailer was able to identify and protect the products most important to customers (not necessarily the best-selling lines, but those key for driving customer traffic and preserving rest-of-basket spend).
With +2% average uplift on sales, 1.4% volume growth, and improved availability, the results were extremely positive for both retailer and customers. The smaller range and increased space in-store for remaining lines resulted in improved customer satisfaction. Paradoxically, the reduction in choice actually made it easier for customers to find what they were looking for, adding speed, ease and convenience to the overall shopping experience. A tough choice to make, but ultimately the right one.
There is no doubt that choices are getting tougher in retail. Margins are getting thinner. Competition is getting fiercer. No one can afford to stand still. And everyone wants to feel confident they have the best intel to make the right decisions. Making major changes to category strategy is never going to be comfortable, but with customer insights and a robust framework supporting decision making, retailers can be confident they’re on the right track.
Get in touch for more information about how we can help retailers drive growth through better category management