Is Category Management Dyingout?
Increasingly, as store footprints get smaller, category management is morphing as well.
Less space on the shelf means more hard choices for category managers. As a result, many are turning to shopper insights more commonly associated with shopper marketing programs to determine product placement and facings.
"The more shopper-specific information, the better we can conceivably be at category management," says Jeff Weidauer, vice president of marketing and strategy at Vestcom, Little Rock, Ark.
"As stores shrink, retailers are going to have to make some tough decisions about who they're going to serve and, by definition, who they're not going to serve," Weidauer says.
Adding insights about shoppers' behavior can help retailers make the best decisions. Increasingly, the focus starts with understanding what customers want: "What makes them tick, what they're buying, what they're not buying...those three pieces are going to work very closely together, all the way through the category management," Weidauer says.
Supermarkets adept at shopper marketing techniques can influence consumers' choices all the way along the path to purchase from the time shoppers compile grocery lists in their kitchens to their impulse purchases in the check-out lanes.
Against a backdrop of channel-blurring, the focus on shopper marketing can help retailers find ways to convince consumers to make their banners a destination.
"A retailer needs to understand the current perception: What role do the majority of top shoppers assign to them in their portfolio of top outlets?" says Paul Price, executive vice president, Acosta Sales & Marketing, Jacksonville, Fla. "The retailers that are going to win are the ones that really understand their top shoppers" so they can appeal to them more broadly, Price says. For example, they have to understand how and when consumers are deciding to shop at their banner instead of another channel. "Now [retailers are] trying to take a holistic view of the path to purchase to determine why consumers are selecting them for certain trips," Price says.
While traditional category management offers a lot of supply-chain focused metrics, by overlaying shopper marketing, retailers can understand so-called leaking, conversion and share of wallet, Price says. Leaking refers to the percent of shoppers who are choosing not to purchase certain products from a retailer because they intend to buy them in another channel, often to save money.
By drawing on consumer insights, shopper marketing programs can increase basket size by improving the shopping experience for various segments of shoppers. And with a higher return on investment, they are starting to supersede category management at some retailers.
"It's unbelievable the amount of focus and energy being put against shopper marketing," says Scott McCallum, president, shopper marketing, North America at Geometry Global. "The reason why there's so much energy and momentum against shopper marketing [is] it most definitely can influence the shopper as they're making a purchase."
For some, the development poses the question: With growing interest in shopper marketing, will category management go by the wayside?
"It's a very interesting question. Just by asking to a certain extent it becomes true," Weidauer says. "Is it something we should be worried about? Absolutely." But Weidauer is among the majority who see merit in understanding and using both approaches. "It's kind of like marketing and advertising. There is no silver bullet. It's got to be combined," he says.
The debate starts with understanding the two disciplines and how they have evolved. Category management today has evolved from a focus on increasing sales and profits of a particular category to an approach that includes an understanding of what the consumer wants to find on the shelf.
Before category management became a popular discipline, supermarkets were largely a clearinghouse of products. "You came to me with a list. It was much less merchandising and it was more product picking," says Steve Pinder, senior manager at Kurt Salmon in Atlanta. Since the development of category management, retailers have been able to improve category sales. "If I can grow the category, I'll grow sales of the brand," Pinder says.
While the CPGs appointed category captains to work with retailers to manage the shelf space, the retailers still had the final say on product placement, and many based their decisions on a brand's ability to pay.
"I've seen a lot of people spend a lot of money in category management just to be on the board– I mean board of what?"
"I've seen a lot of people spend a lot of money in category management just to be on the board–I mean board of what?" says Joost Wouters, international CPG consultant at ActImpact.com in Spain, who has worked with Unilever, Procter & Gamble, Nestlé and other major brands. All of the focus on one spot in one store could mean overlooking other types of marketing opportunities with better potential returns.
Wouters suggests the category management approach was weighted in favor of bigger manufacturers with established brands. Yet they still could be missing the mark, because shoppers increasingly have had their attention diverted by new channels, new social marketing efforts, less-expensive private label brands and the growing use of shopper marketing. There have been "so many category feuds about who's on the main spot. It's not an objective way of looking at the category," he says.
But the challenge is still what to do with the information. The growth of shopper marketing has encouraged more strategic collaboration among brands and CPGs. "Shopper marketing offers the opportunity for manufacturers to have a much more meaningful dialogue with retailers," says Toby Desforges, founder of Engage and co-author of "The Shopper Marketing Revolution."
The Journal of Retailing puts forth this broad definition of shopper marketing from Venkatesh Shankar of Texas A&M University: "The planning and execution of all marketing activities that influence a shopper along, and beyond, the entire path-to-purchase, from the point at which the motivation to shop first emerges through to purchase, consumption, repurchase and recommendation."
Shopper marketing has emerged from the proliferation of shopper insights available, and it generally involves collaboration between the brand and retailer. The impetus can be the retailer or the brand. For example, Publix created its Aprons program out of marketing intelligence showing consumers wanted help in menu planning, including recipe and ingredient selection. It offers recipe cards with shopping lists and stocks all of the ingredients in one spot in the store so consumers don't have to hunt for them.
Shopper marketing can lead to compelling in-store marketing. Trader Joe's, for example, has added excitement through a curated approach to managing its merchandise that flies in the face of traditional category management's emphasis on profits. The retailer's small format forces it to edit product selection to about 4,000 SKUs, with 80 percent being Trader Joe's brand, according to Fortune magazine.
But shoppers trust the retailer's choice of merchandise because it has a reputation for quality and value. They also appreciate not having to wade through dozens of SKUs, and the abbreviated selection makes for quicker trips through the store.
The company doesn't charge slotting fees, and it doesn't make product placement decisions based on profit but rather on what it determines customers will want, Fortune said. Per square foot, Trader Joe's stores sell an estimated $1,750 in merchandise, which is more than double the amount Whole Foods sells, the story said.
"Trader Joe's carries a third of the total SKUs of what a Kroger carries but still drives a pretty significant basket," Pinder says.
Publix, Trader Joe's and other retailers increasingly are cross-merchandising products, such as placing vanilla wafers next to bananas to go along with a dessert recipe, or stocking salsa in the chip aisle because the two often are purchased together, says Pinder.
While effective at driving sales of complementary products, the approach can disrupt traditional category management. "There's no question category management is under a lot of pressure," McCallum says.
Retailers can still strive to grow categories, and category management tools will continue to be relevant, Desforges says. But the advent of meaningful shopper data has changed the way retailers make decisions about assortments and quantities.
Door to Door Organics
Even in the e-commerce arena, merchants are combining aspects of category management and shopper marketing. "I view category management as the basic structure of how you go to market, and shopper marketing as a strategy extension of category management," says David Clark, chief operating officer at Door to Door Organics in Louisville, Colo., which offers organic and local food products delivered to consumers' homes. Clark spent 35 years managing the food and drug categories in brick-and-mortar stores and has applied his experience to the e-commerce space.
The Internet retailer provides recipe bundles and dietary bundles, such as a collection of juicing products sold together, then targets promotions to specific customers via e-mail. It uses data on individual customers to suggest assortments, upsell additional products and determine pricing.
"The basic analytics is something we're very interested in. We want to understand what is the assortment customers are buying? What kinds of things go with what?" Clark says. "We want to ultimately show the customer a more relevant store."
Door to Door also offers a restock feature, where it uses analytics to build the shopper's basket based on prior purchase behavior. "If we know every four or five weeks you buy coffee, we will put coffee on your list," he says.
"If you think about the core of what category management is about, it's about the what. The data is all transactional in nature. Shopper marketing is about the why–why do they engage? If you try to link the whats and the whys, that's the power."
By weaving shopper insights into decisions about product offering, packaging and messaging on the shelf, manufacturers can enhance category management, McCallum says. "If you think about the core of what category management is about, it's about the 'what.' The data is all transactional in nature. Shopper marketing is about the 'why'–why do they engage? If you try to link the whats and the whys, that's the power," he says.