Category management is a common term in the world of retail. This technique can be used by retail stores not only to manage clusters of items within a shop environment but also acts as a way for companies to buy more efficiently and save significant sums of money in procurement. So, what exactly is category management all about? In a nutshell, it is the concept of segregating similar products into separate groups. A category is essentially a group of related items that a company wishes to buy under a single deal. The management aspect is concerned with applying procurement methodologies to ensure the firm maximizes their savings. In the broader sense, category management aims at meeting customer needs and maximizing the value of the retail shelf space. Here are five rules of category management that retail stores must follow:
Rule #1: Be involved in decision making
Most retail stores will have a lead supplier who has the inside running because they have better access to the necessary data and decision makers. This doesn’t mean retailers cannot participate in decision-making. Being persistent, informed, and helping the buyer management hierarchy achieve their KPI’s all contribute to nurturing relationships that will benefit retailers in the long run. It is essential for retailers to know the relay schedules and be involved in planning discussions.
Rule #2: Understand the volumes and margins
Retail stores must understand the volumes and margins of all products in the category and manage their recommendations to the retail buyer with their objectives also taken into consideration. Retailers must aim at maximizing the absolute margins that come from the shelf space, rather than just concentrating on their individual margins.
Rule #3: Calculate sales from different shelf positions
Another important rule of category management is to understand how the shelf positions of different SKUs’ impact the sales. In the case of retail stores which deal with a large number of products, it is practically not possible to place all the products at an eye-level. Retailers have to decide if more sales will come from placing products at a higher level or a lower level. Companies in the retail industry also have to determine the type of shelf grouping – by size, brand, or flavor that would result in maximum sales. This can be done by experimenting with different combinations and comparing the sales data after the changes have been made.
Rule #4: Leverage seasonal volumes
Seasonal sales are an excellent opportunity for retailers to experiment with the manner in which they allocate their shelf space and undertake category management. For instance, during Christmas, retailers tend to allocate products carefully, as they seek to maximize their seasonal sales. Seasonal sales account for a good spike in the sales volume and profits made by most retailers. Hence, careful category management and planning is crucial in the case of seasonal sales and the preparation for the same should be done well in advance.
Rule #5: Maintain planogram discipline
Planogram is a document that executes the category management decisions at store level. Retail stores use the planograms to organize the selling face in the stores, and also as a medium to maintain discipline on store management. But retailers can apply creativity to the manner in which products are displayed to encourage cross-selling and up-selling opportunities but without destroying the discipline of the planogram.
To know more about the applications of category management in retail stores