13 terms

Week 5: Category management and merchandise assortment management

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Terms in this set (...)

category management
- Represents a major departure from the traditional brand/manufacturer account-based approach to managing merchandise. Rather than making isolated brand decisions, now decisions about brands are made to meet category goals
- process of managing product categories as strategic business units, and coordinating merchandise assortment, shelf-space allocation, pricing, promotions, and inventory management decisions to achieve the overall objectives for the overall category
- defined to reflect consumers' purchase behavior
- primarily developed in supermarkets, drug stores, and mass merchandisers since late 1980s, and is also gaining popularity among other retailers in recent years
9 step process of CM
1. define category
2. set category and role and goals
3. access the category
4. develop scorecard
5. develop strategies
6. develop tactical plan
7. develop financial plan
8. implement plan
9. monitor and review plan
claimed benefits of category management retailers
Integrates the overall corporate strategy with the category strategies
Addresses category strategic and tactical issues based on how consumers define their needs and make their purchases
Opportunity to differentiate from competitors
Improves internal coordination and efficiency
Leverages data and information to make better decisions
Increases sales and profits
what CM means for manufacturers
The process of assisting retailers to set category objectives and design category strategies, and then aligning the manufacturers' marketing activities and programs with these objectives and strategies, in order to increase total system profits and thus the manufacturer's own profit
Some retailers rely on savvy manufacturer to help them manage a particular category. This manufacturer is known as the "category captain"
CM helps creates retailer-manufacturer synergy and establish long-term strategic relationships between 2 parties
antitrust issues of the category captain arrangement and how to mitigate them
Antitrust concerns for category captain (CC) arrangements:
- A category captain can use its role to exclude competitors' or significantly increase the costs of competing by revivals
- A category captain can use its role to facilitate collusion among competitors in the category or between competing retailers that the category captain serves

Category captains need to temper zeal for abusing their power as CC. Retailers should never give up control over their categories
category roles
Store traffic generation → Categories that attract consumers a visit to the store
Sales/cash generation → Categories that generate substantial sales revenue for a store (they do not necessarily have high % profit margins)
Profit generation → Categories of higher than average % gross margins and direct product profits
Defining/maintaining store image (variety, price, excitement, services, convenience)
pricing decisions example of category roles
Traffic generated → ?
Sales/cash generator → price is near the competition
Profit generator → can afford to charge over the competition (ie. specialty items)
Used to create a low price image for the store → those stores are known for their low price
merchandise management
Refers to the process by which a retailer attempts to offer the right quantity of the right merchandise in the right place at the right time and meet the company's financial goals
staple merchandise
Consists of items that are in continuous demand over an extended time period. The number of new product introductions is small compared to the number of existing SKUs in the category
Merchandise planning systems focus on continuous replenishment, often automatically
Ex. jeans and underwear

forecasting:
Statistical models are applied to historical sales data to predict future sales
fashion merchandise
Consists of items that are only in demand for a relatively short period of time. New product are continually introduced
Sales forecasting and merchandise management for fashion merchandise is much more challenging
Ex. cellphones, computers

forecasting:
Previous sales data of the category
Market research
Fashion and trend services
Vendors
Personal awareness
assortment decisions at store level
trade-offs bt breadth and depth assortment
- Breadth: the number of different merchandising categories offered within a store (or a department)
- Depth: the number of individual items (SKUs) a retailer carries within a category
- Broad assortment draws in different market segments
- Deep assortment increase product availability

trade-off bt efficiency and image of variety
- need to make sure there is enough variety to keep people from coming back
assortment decisions at category level
In the last two decades, supermarkets have shown a stock-keeping unit (SKU) explosion
- Manufacturers pursue product proliferation
- Retailers fear the eliminating items could lower consumer assortment perception and decrease store visits
More recently, retailer were urged to adopt "Efficient Assortment" to lower operating costs by eliminating low-selling items
From the consumers' perspective: More is not always better!!
Assortment decisions is a combination of art and science
Depends on the strategic role of the category
Depends on the role of individual items within the category
Most analytical tools have been developed to deal with category level assortment decisions
fair share indicies
A fair share index < 1 indicates that the category performs better than the store average on a particular measure and > 1 indicates the opposite
They are diagnostic tools (not used to set performance objectives)
Help identify underperforming categories and subcategories (serve as a starting point)
Assortment decisions need to be made in combination with other considerations, such as the category's role in:
- Creating variety image
- Generating excitement
- Generating store traffic
- Space productivity