Category management definition

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 Frame of reference

This chapter provides frame of references from different dimensions, where theories and ref-erence will be applied in analysis in chapter 4. The way of conducting all the literature study in this chapter is explained in chapter 3.

Category management definition

The concept of category management was initially introduced at the beginning of 1990s as part of Efficient Consumer Response (Larson, 2005). It started with a strategic change of the manage-ment emphasis from the manufacturer’s side to the retailer’s categories (Dupre & Gruen, 2004). At the beginning, category management was regarded as a strategy mainly applied to grocery sec-tor, or limited to food categories (Dewsnap & Hart, 2004). However, over the past 20 years’ de-velopment, it is beyond the bounds of food retail and it has been developed into a prevailing strategy for retailers in many business areas (Steiner, 2001).
Gruen and Shah (2000) explain category management is designed to help retailers know how to mix products appropriately. Dupre and Gruen (2004) add that category management should be regarded as a joint procedure during which both retailers and suppliers handle product categories in order to increase customer value. Meanwhile, category management is a continual, long-running business philosophy which must strategically meet the changes of customers’ needs and simultaneously assure the retailer’s profit (Kotzab & Bjeere, 2005).
Above all, we conclude that category management focuses on 3 key points: (1) both customer-centric and sales profitable; (2) managing the category as a strategic business unit, grouping prod-ucts together and identifying how products are consumed or purchased; (3) a joint process be-tween suppliers and retailers based on their mutual trust and cooperation.

Category management process

The process of category management consists of three phases, namely analysis, implementation and forecasting (Kotzab & Bjerre, 2005). Analysis refers to analyze the collected information re-garding to customers, category development, and the retailer’s performance in the category. Im-plementation means to carry out the analysis above in order to enhance customer satisfaction, in-crease sales and decrease costs. Forecasting represents the expectation of how categories can be developed and how customers’ needs can be determined in the future. Here, to make it more clearly and more detailed, The Partnering Group has developed a model, namely category man-agement 8-step cycle, to further explain the process of category management. (JIPECR, 1995) (See Figure 2-1). The process is created based on the combination of category objectives, com-petitive environment and customer behavior.
Figure 2-1 Category Management 8-step cycle.
Source: Joint Industry Project on Efficient Consumer Response (JIPECR), (1995).

Category definition

Category definition, as the first step of the process, is to determine the products which comprise the category based on customers’ perception and meanwhile develop the customer decision tree (ACNielsen, 2006; Kotzab & Bjerre, 2005). Category definition needs retailers to create the struc-ture of the category which includes all unique identifiers of each distinct product and service that can be purchased, i.e. stock-keeping unit. The structure will be later utilized to guide all other analysis in the category plan. Category can be defined either wide or narrow, but the products in the category must be replaceable or inter-related (Basuroy, Mantrala, & Walters, 2001). Besides, category definition must be based on the targeted customers’ needs or marketing objectives, as it presents the level of importance to the customers for retailers. IGD (1999) suggests retailers need to focus on the development of new products which is targeted to the customers’ needs. Let us take some examples to explain it: textiles, kids’ products and lightening products. A wide category definition based on the above products are window textiles, kids’ care and lamps accordingly, while a narrow category definition based on the above products are curtains, kids’ safety products and wall lamps accordingly. It should be noticed that the category should be defined carefully ac-cording to the customers’ shopping behavior and the retailers’ various objectives (Demeulenaere, Wither, Weber, Joannic & Turner, 2000), which have great influence on category.

Category role

Category role means to define the role and the function of the category concerning the store concept and the retailer’s targeted customers (Kotzab & Bjerre, 2005). It determines each cate-gory’s importance accordingly in the retailer’s portfolio of categories. As not all categories are of same importance to retailers, the approach to deal with different category roles can be differ from one retail store concept to another (Kotzab & Bjeere, 2005). Thus, it is apparently necessary for retailers to determine which category is playing which role. Johnson (1999) suggests the step of category role compels retailers to think what they want out of a specific category. Dhara, Hochb and Kumarc (2001) have also mentioned as the category role which the product plays in the daily life can result in huge differences of customers’ behavior and motivations, retailers are required to clearly identify across categories systemically. Thus, they can effectively assign the rare market-ing resources and get more sales.
Generally, there are four strategic roles of categories, namely destination, routine, seasonal and convenience (Holmström, 1997).

Destination

A destination category, as the competitive advantage, helps retailers to be the store of choice for the target customers by offering continual and superior value (ACNielsen, Karolefski. & Heller, 2006). Different retailers may have various destination categories according to their targeted cus-tomers (Dupre & Gruen., 2004). Besides, as destination category tends to have relatively high sales, good inventory turnover and differentiation of advantage from other retailers in customers’ opinion comparing to others (Blattberg, 1995), it is very vital for retailers to focus on customers’ view point (Holmström, 1997). In other words, destination category has a strong connection with the customers (e.g. notebooks or stationeries for students). Therefore, the destination role of category is generally assigned a higher share of resources than an average one (Singh & Partner, 2000).

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Routine

A routine category aims to attract customers into the store by offering continual and competitive products which meet customers’ routine stock-up demand (e.g. toothpaste, toilet soap and so on). Normally, retailers give the resources which equal to the average share to routine categories (Singh & Partner, 2000).

Seasonal or occasional

A seasonal category which implies high seasonality is the one that is bought infrequently or obey cyclical way. In specific time of the year, seasonal categories are the products which customers  expect to have (Holmström, 1997) and some of them can be turned into destination categories. For example, Chinese moon cakes can become destination category for customers to purchase during Chinese Lantern Festival.

Convenience

A convenience category is the one that customers think more convenient to pick up at a neighborhood retailer than another retailer which provides cheaper price. Factors such as prod-uct availability, pack size, reputation (purchase for someone else) are convenience access which bring customers in store (Rowley, 2005). Convenience categories focus on customers’ unplanned “fill-in” demands, which play a strategic role to retailers to make itself a one-stop-shopping place. Basically, a convenience category is assigned below average resources, and its contribution to the shop of choice for the targeted customers is convenience or one stop experience (Singh & Part-ner, 2000).

Category Assessment

This step includes gathering and organizing data, analyzing historical data and concerning infor-mation, understanding the category performance and identifying the greatest opportunity of sales, profit and return on assets (Basuroy et al., 2001; Singh & Partner, 2000). The four types of his-torical data are normally used as follows (Moulton & Lapsley, 2001): consumer data, market data, retailer data and supplier data. The outcome is to determine the biggest opportunities in the cur-rent category in the area of turnover, profit and return on assets. The category assessment is a documented process based on charts and graphs. It may be hardest part of the category manage-ment, but a complete assessment is crucial for the development of following steps such as cate-gory strategies and tactics according to ECR Europe Category Management Best Practice Report. Besides, the implementation of the assessment is dependent on the cooperative work between suppliers and retailers, because no single organization can have all the data or insights to carry out the assessment alone effectively (Moulton & Lapsley, 2001).
Below is the further explanation of the four data elements (See Figure 2-2):

Consumer data

Consumer data helps retailers understand customers’ purchase behavior. Desrochersa and Nel-son (2006) suggest adding consumer behavior insight to category management is a vital in as-sessment, as some important questions which need answering represent the consumption trends of the category: what needs or wants are satisfied by the category? What are the demographic and lifestyle characteristics of the most users? When do the purchases happen? Is there any seasonal-ity? What is the share of various channels such as discount stores, grocery stores, convenience stores, etc? How much of the category is sold on promotions (Singh & Partner, 2000)?9

Market data

Market data assessment aims to figure out the current market share for the category gained by re-tailers and competitors in the market, to find the sales and consumption tendency of the category and the market share opportunity gaps in the category (Moulton & Lapsley, 2001): what are the sales and share trends of the category in the market? What is the retailer’s market share for the category? How are the retailer’s marketing activities such as pricing, shelf presentation, assort-ment and promotion going compared to its competitors (Moulton & Lapsley, 2001)?

1 Introduction
1.1 Background
1.2 Problem specification
1.3 Purpose
1.4 Research Questions
1.5 Delimitation
1.6 Disposition
2 Frame of reference
2.1 Category management definition
2.2 Category management process
2.2.1 Category definition
2.2.2 Category role
2.2.3 Category Assessment
2.2.4 Category Performance Measures
2.2.5 Category strategies
2.2.6 Category Tactics
2.2.7 Plan Implementation
2.2.8 Category Review
2.3 Demand side
2.3.1 Demand management
2.3.2 Customer focus
2.3.3 Category management collaboration
2.3.4 Strategic retailing positioning
2.4 Benefits
2.5 Summary
2.6 Working Model
2.6.1 Reason
2.6.2 Explanation
3 Methodology
3.1 Research approach
3.1.1 Research types: quantitative research vs. qualitative research
3.1.2 Reasons to choose qualitative approach
3.2 Research Strategy: Case study
3.2.1 Definition
3.2.2 Reasons to choose
3.2.3 Types of case study research: explanatory and exploratory
3.2.4 Case selection
3.2.5 Research strategy
3.3 Data collection
3.3.1 Primary data and its collection
3.3.2 Secondary data and its collection
3.4 Literature study
3.5 Data analysis
3.6 Reliability and validity
3.6.1 Reliability
3.6.2 Validity
4 Empirical Findings and Analysis
4.1 Case description
4.1.1 Introduction of Lianhua supermarket
4.1.2 Category management in Lianhua supermarket
4.2 Application of working model
4.2.1 Phase 1: Strategy and positioning
4.2.2 Phase 2: Develop category plans
4.2.3 Phase 3: Plan implementation
4.2.4 Phase 4: Category review
4.2.5 Category management collaboration
4.2.6 Customer focus
4.3 Barriers and challenges
4.4 Suggestions
5 Conclusion
6 Discussion
6.1 Theoretical implication
6.2 Managerial implication
6.3 Possible future research
References
Appendix
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