CPG Industry Overview
Increasing complexity in the retail-CPG industry has compelled many companies to take a closer look at their category management strategies. Retailers and CPG companies are seeking higher levels of insights to devise category management strategy to effectively reach consumers who have more choices than ever before in terms of channels, stores, and products to choose from. However, it is not easy since CPG product categories are experiencing falling prices and little to no growth. Stagnating mass market, fragmented niches of growth, cross-channel shopping, and the continued rise of discounters are a few more challenges impacting their market dominance.
Business Challenges Faced
The client, a leading CPG company in Europe that creates wholesome foods and offers them in over 150 countries, was facing predicaments in developing strategies to drive category growth. They wanted to optimize pricing and improve profitability while identifying infrequently bought products. They also wanted to identify key value categories (KVCs) and key value items (KVIs) but lacked a category management strategy for doing it. The client, therefore approached SpendEdge to help them increase sales volume by analyzing product categories.
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Our Research Approach
To help the client identify key value categories, the experts at SpendEdge developed a robust category management strategy. The strategy helped the client to identify 50 KVCs that accounted for more than 50% of the client’s total sales. The team then analyzed key value items within these categories to ensure that the final of KVIs covered a broad and representative set of categories. The team also offered category pricing solution to help different stores to adjust prices depending on the competitive environment.
The tailor-made category management strategy helped the client to analyze transaction or loyalty-card data and determine the products that often appear in baskets alongside other price-sensitive items. Based on the frequency of purchase and share of category sales for items in the KVCs, the client calculated price awareness score. The scores helped the client to rank the SKUs within their categories.
The category management strategy helped the client to identify KVIs that accounted for 10%-15% of sales in the category. This empowered the category managers to benchmark their assortment and prices against those of discounters and improve profit margins by 11%.
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Best Practices to Develop an Effective Category Management Strategy
- Determine product categories by bringing together products or services that have the same features.
- Ensure that the categories are aligned to business goals.
- Develop category benchmarks to identify improvement opportunities.
- Perform price analysis while monitoring of trends in the category.