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Prerequisites to Master Category Management

Jul 26, 2017

Category management is quintessential for retailers as not all merchandise is equally important from a revenue generation point of view. Retailers stock multiple items, some of which may be of low value but drive profits and some items may have a very high demand but yield lower profit margins. It is important for a retailer to understand the nature of each merchandise to design an efficient get in touchplanogram, merchandise management plan, inventory management plan, suggest new product introductions, and design promotional activity.

Category management provides a host of benefits including increased sales and turnover, maximize shelf efficiency, minimize inventory shrinkage, loss prevention, and recognizes procurement opportunities. In order to maximize profit opportunities in retail sales, it is important to master category management using these steps:

Proper Category Definition

It is important to note that the classification for product category is not to be done to simplify things for the retailer, but should also be derived from consumers’ behavior. With proper insights on consumer behavior, it is vital to assign products to different categories based on customers likes, preferences, dislikes, purchase patterns, and packaging. For instance, a supermarket may categorize a sandwich into bread products, whereas a restaurant may assign it to vegetarian or non-vegetarian food.

Define Category Role

Retailers need to define the priority level and assign a role for each category derived from consumer preferences. For instance, products under the category of luxury brands will drive more profit with low volume sales and low-priced brands are a major volume driver for the store. Some categories while not necessarily a profit driver have strategic significance and can thus be given importance. A good example of this can be dairy products in a supermarket since a majority of customers make frequent dairy purchases, they end up buying more than just dairy products.

Category Assessment and Appraisal

Retailers need to assess the performance of each category and sub-category of products with respect to its performance based on sales, turnover, profits, consumer review, and performance against shelf space. It gives them actionable insights on efficiency of category definition, categories requiring attention, and identification of investment opportunities.

Category Strategy

A robust category strategy is a must to capitalize on category opportunity for the optimum utilization of resources. After a thorough assessment, each category is used for a specific strategic reason, which could be traffic building, turf protection, transaction building, profit generating, excitement generating, cash generating, or image enhancement.

Category Tactics

Category tactics include specific action plans, which are required to achieve the chosen strategy. It is essential to make a well-informed decision regarding merchandise assortment, product pricing and promotions, and planogram.

Mastering category management opens up scope for increased sales, profits, and strengthens brand value. By taking the above-mentioned steps into consideration, it is essential to master category management to improve efficiencies and boost profits.

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