In the world of retail, an organization is a key to an effective marketing and business model. Many large retailers and tech companies use Category Management to improve productivity. It’s also called Category Product Assortment or Category Planning. Category Management provides many internal benefits, such as higher satisfaction among shareholders and overall profitability for the company. Digital marketing, PR, and advertising have become dependent on efficient category management. It can be most helpful when businesses sell or market a variety of products. For example, retailers such as Google and Target sell such a wide variety of products. That category management has become a crucial part of their business functions.
Because of the increasing variety of products, and the way categories are treated as separate units of business, marketing and advertising decisions are greatly impacted. Retailers are forced to allow some product categories more marketing resources than others in order to maximize productivity and profit.
But how can category management help? And how will it affect your marketing strategy?
What is Category Management?
Category management is the process of grouping similar products together; it’s quite literally the process of managing categories. Products that are bundled together can be treated as individual businesses. Depending on the kind of category management a company uses, these product groups are overseen by different Category Captains or Category Managers. The captains regulate the operations of their specific product category. They make decisions to improve productivity, including decisions regarding competitors’ products. This makes managing products within the company much easier. Category management can also help businesses make more effective purchases, by consolidating similar goods into larger contracts.
A retailer’s marketing strategy will differ for each category. Retailers must designate the appropriate marketing resources to each category. This depends on how the category performs in the market, what motives customers have for purchasing the product, and how consumers use the products in each category in their everyday lives. Understanding the category and how to allocate creative marketing and digital marketing resources will make for the most efficient category management.
Creating a system for a more organized and efficient supply chain sounds great, but there is some debate about which kind of category management is best. Retailers should choose a category management approach that will best fit their business model, marketing strategy, advertising campaign and allotted resources.
Category Management and Marketing
What might be most important for retailers to consider when executing category management is how to allocate resources for marketing actions that have the greatest impact on a category’s performance. Which of the Four Ps will improve or affect a product category the most? Retailers should make marketing and advertising decisions according to the category’s role in a consumer’s everyday life. Retailers need to have a comprehensive understanding of the product category and the target audience in order to determine what will motivate consumers to make a purchase.
Choose a Category Management Approach
Centralized Category Management
Centralized category management gives the retailer full control of the process from start to finish by having a single department responsible for all purchasing. In a centralized approach, retailers are able to partner with outsourcing suppliers. This will ensure greater long-term performance and helpful collaboration with experienced suppliers. However, it requires more resources than some small businesses might have. Smaller retailers, like local grocery stores and boutiques, would have to choose which marketing actions to execute in order to achieve the greatest payoff.
Decentralized Category Management
Large companies or businesses that are rapidly expanding typically use a decentralized approach to category management. Different departments or retail locations have different purchasing or management responsibilities. These departments make decisions based on their own needs or their regional requirements. Globally operated companies use a decentralized approach because it makes distribution much easier. Category management becomes a vital part of a business for massive firms like Target and Google. And a decentralized approach affects the way these companies market and advertises their products. For example, a Target store in Arizona will design a marketing plan for a group of winter clothing products much differently than a Target store located in Vermont.
Category Management Captaincy
With this approach, the retailer designates a supplier to be the Category Captain or Category Manager, creating a closer relationship between the retailer and the supplier. The supplier dedicates more time and skill to assist the retailer in developing, growing and marketing the product category. And in turn, the supplier gains influence with the retailer’s functions. Some Category Captains choose to outsource experts to gain insight into category benefits. This is extremely helpful when it comes time to decide where and when to advertise and market the product to the selected target audience.
Category Management Partner
This category management approach is the most cooperative. It involves a retailer partnering with several suppliers within a single product category. Purchase decisions tend to be well-informed and unbiased when there is the collaboration between knowledgeable suppliers. When more category partners are involved, there is a greater possibility of gaining funding. That means gaining more opportunities to market more product categories. Also more opportunities to advertise and increasing profitability.
Image from Bearing Point Management & Technology Consultants
Successful Category Management
One important step toward a successful category management system is clearly defining your categories. Products will differ in profitability and consumer need. Retailers must segment product categories logically and concisely. Part of sorting goods properly is understanding the product, and knowing the stakeholders. Subcategorization of product groups even further can help retailers execute different marketing strategies. And create better advertisements. The more specific a retailer can be in describing a product category, the easier it will be to market that category to the target. The way a business categorizes its products could affect consumer decision making, and in turn, its profits.
Retailers and suppliers should review and reassess product categories periodically, as well as their marketing strategies for each group. Category assessments will ensure each product group is maximizing profits and productivity. If efficiency is lacking, the retailer can change or remodel its categories. If awareness of the product group is stagnant, the retailer can create a new plan for marketing and advertise the category. Assessments will help the retailer and the supplier maintain open communication and a constructive relationship.
Written by: Rebekah Swank