The current state of category management and 3 ways the industry is coping with the change
Category management offers desirable outcomes to suppliers, retailers and customers.
When done correctly, it can enhance the consumers’ buying experience while providing efficient delivery of products and generating profit for both retailers and suppliers.
However, as a Category Manager, you’re probably well aware that this isn’t a simple and straightforward process. It requires data-driven assortment planning, strategic pricing, effective marketing and the development of optimized planograms.
So, are you conducting category management in the best way?
To help, here is some useful information about the present state of category management practice and how we can advance it to boost business’ success.
What is the current state of category management?
According to the research led by the IHL Group, suppliers and retailers in the US experience $144.9B out-of-stock losses every year due to poor category management.
Experts in the industry have also noted how the retail space is on the decline, while new item launches have continued to be robust – that is, Consumer Packaged Goods (CPG) suppliers are releasing new innovations much faster than retailers are increasing their retail spaces.
These factors show that a lot of CPG companies and retailers are still finding it difficult to optimize their retail shelves.
What are the challenges behind shelf-space optimization?
To maximize the advantages of shelf-space optimization, you must find the perfect balance between product assortment and retail space.
However, this category management practice of optimizing the right product mix and drawing effective planograms is often tedious, time-consuming and costly. In fact, I’m some large CPG companies it take up to 150 steps to undertake the current category relay process, 33 weeks to complete a category relay and over 15 people every day to do the work of a single category relay.
Achieving high returns from your retail shelf space investment also requires more than just legwork – it necessitates specialized skills to align customers’ preferences with product availability. You have to prioritize driving profits and delighting customers at the same time, too.
Nevertheless, these challenges aren’t isolated cases. They are common concerns of retailers and suppliers across the globe.
What are the impacts of these challenges in our industry?
The challenges of category management have created unintended ‘collateral damage’ throughout the retail and CPG industry.
Here are the two (2) major impacts:
1. In general, retailers can only manage to undertake 1-2 relays per year.
CPG suppliers often adjust their product innovation schedule to match the retailers’ category relay process. But since retailers can only manage to have 1-2 annual relays due to the length of time required, shoppers are limited to seeing new items just once or twice a year.
There is also the problem of inefficient team utilization. Category management resources are at full capacity with way more demand for the significant first half of the year – exceeding capacity for 33 weeks and then being slightly unproductive for the other 19 weeks.
2. All stores are being reset in a generic way.
The tendency to reset stores all at once in a generic way has stemmed from the inconveniences brought on by the category relay to both suppliers and retailers.
The results, however, have not been entirely positive. The individual stores are left with markdowns, massive strains on their labor force and unhappy customers who are not keen on the purchasing adjustments they have to make.
As an industry, we were forced to adapt and cope with these impacts through different approaches.
How is the industry coping?
The typical category relay process and retail shelf utilization demands a significant amount of time, effort and people-power. To address issues and cope with the challenges of category management, the industry resorts to these types of approaches:
1. Oversimplifying and overgeneralizing
Category managers have been grouping items, stores and shoppers into buckets we often call “segments” or “clusters.” You’ve also probably observed different market areas and utilized a group of competitive data sets, too.
Unfortunately, in doing this, you’re losing your ability to cater to unique stores which are located at a unique location with unique shoppers. Applying a broad category management solution for your distinct store requirements can be counterproductive for your business.
Always keep in mind that no retail store is exactly alike - each has its own rules, constraints and objectives.
To handle the workload, the industry facilitates specializations.
Category managers study market-level insights and determine market-level assortments, then pass assortment recommendations to planogram staff. If all the products don’t fit into the shelf, these planogram specialists will ask for help from category managers again.
This kind of strategy may not always provide precise solutions because category managers are not fully aware of shelf space limitations, in the same way that planogram experts don’t fully understand assortment optimization.
Therefore, the ideal solution is simultaneous assortment and space optimization. Combined with mutual awareness, such an approach can drive more effectiveness and efficiency.
3. Spending too much time on data collection
You can’t deny that a lot of us in the CPG and retail industries are dedicating a lot of time and effort on things we’re not specialists in, such as data collection, data preparation, data loading, analysis, reviewing business rules and more.
As humans who are prone to error, it’s still possible for us to generate inaccurate recommendations even though we’ve taken months or years to pull these kinds of processes off.
To optimize the assortment and retail space, it will be much better if we pay attention to things we’re really good at such as critical thinking, strategy design and planning.
Fortunately, we’re heading into times of change – category management is now moving forward with humans and technology augmenting each other’s strengths.
What is the best solution?
To get the optimal benefits of category management, suppliers and retailers need to move past its traditional approaches.
It’s time to embrace progressive change and blaze new trails. Today, breakthroughs in technology have been paving the way for Artificial Intelligence (AI) in retail.
Advanced machine learning methods like “Deep Learning” now provide AI-generated data and analytics that businesses like yours can use to easily determine the right product mix, the right space-to-sales and right sales price to maximize profitability.
Through world-class technology and competent implementation, you can generate more positive returns on your retail shelf space investment.
How can HIVERY help you?
HIVERY is the pioneer of hyper-local retailing, combining artificial intelligence, optimization and design to help CPGs and retailers generate an increased return on physical retail space investment.
Our product, HIVERY Curate, is the world’s first truly hyper-local category management solution, offering the simultaneous optimization of assortment and space for each unique store. It’s powerful and continuously learning AI-driven engine optimizes generates rapid category strategies, insights and actions to take around product assortments, space and planograms generation.