What is the role of category management?
Category management is the process of grouping products sold by retailers or purchased by businesses according to similarities and acknowledging these categories as individual business units. Category management also involves developing the ideal strategies to promote, sell, or market these products and requires extensive planning, ideation, coordination, and clarity regarding its portfolio, end-consumer’s needs, and product similarities. Categorizing has become a crucial and effective method for strategizing, marketing, production, and delivery over recent years. Category managers focus on the four P’s of category management: product, placement, price, and promotion. Each of the four is a crucial tenet of producing, selling, pricing, and marketing a retailer’s offerings or company’s needs. This process aims to help optimize sales, minimize risks, increase return on investment, and improve savings. In the challenging and vast healthcare industry, products mostly form categories like commodities, clinician preference, and physician preference. However, efficiently organizing and then managing products can be daunting. Therefore, most companies follow a determined category management process, from identifying and defining categories to implementing proposed strategies and tactics to gain the desired results.
What is category management process?
Definition and Role: Retailers often categorize their products as per consumer preference, packaging, and usage. This step is crucial and requires significant speculation but is met with reluctance among retailers across industries. Regardless of categorization, retailers must focus on consumers’ needs, preferences, and buying behaviors instead of their own. This process is consumer-centric and aims to improve the consumer experience, satisfaction, and intent to purchase. The first step also includes determining the priority and role of a particular category in the business process and profitability. Retailers need to assess consumers’ attitudes toward a category, assess market trends and nature of the item or brand when establishing the approach to strategizing, promoting, and selling these products. This step is imperative to create a clear and strong foundation for the category management process.
Assessment and Performance: For this step, retailers must conduct an in-depth analysis of the sales, turnover, profits, and returns of a category through inputs and insights from consumers, suppliers, and market developments. An extensive evaluation of the strengths, weaknesses, opportunities, and threats of the products and categories helps the seller track potential opportunities and identify if they should continue selling, invest further, or highlight gaps and shortcomings in the categorization. After assessing, retailers must measure their determined categories’ performance and develop the benchmark to measure future performance once new strategies and tactics are implemented. This step also involves establishing clear metrics and targets such as margins, return on investment, and sales. Once the bottom-line is determined, suppliers are aware of the shortcomings, problem points, strong categories, and focus areas to formulate data-driven strategies.
Strategy: The third step includes determining objectives, targets, and roles of the categories and capitalizing on potential opportunities through efficient processes, detailed plans, and robust strategies. These strategies help to increase traffic, generate profits, improve cash flow, and enhance brand image. Retailers must also focus on methods to position their brand relative to national brands and pricing their offerings to achieve profit maximization. Some common strategies applied by suppliers include competitive pricing to defend a category, generating excitement with seasonal products, limited offers, or significant trends. Brand image is a crucial tenet of business strategy and an important influencer for sales and customer loyalty. Therefore, most retailers incorporate an image-enhancing approach by focusing on quality, price, service, presentation, or delivery.
Tactics: Determining the focal factors and elements to execute the strategies properly is the crucial fourth step in the category management process. Category tactics are informed and driven by consumer insights, market trends, and shopper marketing, and these tactics vary significantly according to the business model, industry, and location. However, many retailers utilize competitive pricing, major promotions, marketing initiatives, store presentation, and highlighting leading products within categories to maximize profits for their categories and overall business. Retailers must develop a framework for marketing, product supply, business model or retailing format, and product lifecycle while determining category tactics.
Implementation and Revision: The final step involves putting plans into practice with a scheduled system, clear plans, and a precise list of responsibilities. The category plan must be implemented according to the strategies, tactics, and objectives determined in the previous steps to ensure success. Retailers must answer four primary questions – what, when, where, and who. Completing this step according to pre-determined schedules and plans can enable frictionless growth and success. Although the strategizing, planning, analysis, and implementation can be carried out efficiently, retailers need to review and revise their plans as per the performance of the categories from that point forward. Utilizing the benchmark established in the second step, retailers can evaluate their strategies’ efficacy and account for changes caused by assumptions made or factors not accounted for. This step is imperative to maintain continuous growth and ensure the effectiveness of category management within an organization.
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Success Story – SpendEdge Advantage
Category management is imperative across industries and can help companies propel their sales, savings, ROI, and brand image forward significantly. In the healthcare industry, category management’s approach to and the outcome can differ substantially from other business models, industries, and product types. SpendEdge identified and evaluated these potential challenges to help a healthcare industry player establish a data-driven and effective category management process. The client witnessed stagnant sales and sought to improve profitability, returns, and savings with a resilient consumer-centric approach. Category management helped the client identify non-performing segments, develop improved strategies for highly profitable categories, and significantly enhance their brand image. SpendEdge helped the leading healthcare industry client understand and successfully implement the category management process and provided the company with the recommendations and systems required to maintain high profitability, and improve their categorizing, strategizing, and implementing processes in the future.