category management: sharing best practices doing business in bentonville april 16, 2009 1

CATEGORY MANAGEMENT:

SHARING BEST PRACTICES

Doing Business in Bentonville April 16, 2009

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NWACC Category Management Curriculum Contributors

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Typical CPG Team

Roles & Responsibilities

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Modular Development

Most people associate modular development with the CDM role.

Those of us in the role know it’s NOT Tetris!

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STEP 1: Know your shopper

STEP 3: Where do we want to go?

INITIATE

STEP 6: Measure / COE

Category Development Planning

Define the categoryDefine success

Roles & ResponsibilitiesIdentify team members

Scope and TimingDefine expectations

Determine who is shopping, what are their needs, how do they buy?Understand barriers and opportunities.

Execute the Plan

Continual MeasurementConduct Correction of Errors

Track Progress and adjust plan accordingly

Develop category, sub-category & segment strategies. Build

financial plans to achieve category role and strategies.Develop the plan: the correct products, shelf arrangement, off-shelf product

placement, category adjacencies, department layout, availability, pricing & promotion.

Strategic Pricing / Promotion / In-Stock / Assortment / Line Review

STEP 4: How do we get there?

STEP 5: Implement

STEP 2: Know your Competition and your

Category

Assess category performance (market, competitors, & our). Define the

winners and how they win.

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CATEGORY DEFINITION

Your Category Definition should…

Be determined by the customer’s point-of-view

• When I say “Vitamins,” the customer thinks of …

Take into account “like customer solutions”

• Multivitamins and Calcium both dietary supplements that contribute to consumers’ health and wellness

Include products with substitutable and/or complimentary benefits

• Centrum and Viactiv are Multivitamin Brands that might be substitutable

• Calcium and Vitamin D are Minerals/Vitamins that might be complementary

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CATEGORY DEFINITION

Your Category Definition should not be determined by…

Manufacturer• made by J&J or Wyeth

Supplier• distributed by McLane or McKesson

Brand• sold under the Equate or Spring Valley names

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CATEGORY DEFINITION

A Category Definition should outline a Strategic Business Unit

Nutritional Supplements Example: A range of dietary supplement products consisting of vitamins, minerals, herbs

and/or other organic/inorganic compounds, used to optimize one’s general health and wellness.

Category: Nutritional Supplements Subcategory: Multivitamins Segment: Adult Multivitamins Sub-segment: Mature (or Age 50+) Adult Multivitamins

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TRADITIONAL CATEGORY ROLES

DestinationTo be the primary category provider and help define the retailer as the store of choice by delivering consistent, superior target consumer value

Traffic Building

Turf Protection

Transaction Building

Excitement Creation

Cash Generating

Routine/PreferredTo be one of the preferred category providers and help develop the retailer as the store of choice by delivering consistent, competitive target consumer value

Traffic Building

Transaction Building

Profit Generating

ConvenienceTo be a major category provider, help reinforce the retailer as the store of choice by delivering frequent, competitive target consumer value

Transaction Building

Profit Generating

Image Enhancing

Occasional/SeasonalTo be a category provider and help reinforce the retailer as the full service store of choice by delivering good target consumer value

Traffic Building

Profit Generating

Excitement Creation

Category Role Example Strategies Quick Definitions

Transaction Building• Higher Ring-up, Impulse Purchased

Cash Generating• High Turns, Frequently Purchased

Profit Generating• High Gross Margin, High Turns

Traffic Building• High Share, Frequently Purchased, High % of Sales

Turf Defending• Used to Draw Customers

Excitement Creating• Impulse, Lifestyle Oriented

Image Enhancing• Frequently Purchased, Promoted, Impulse, Seasonal

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STEP 1: Know your shopper

STEP 2: Know your Competition and your

Category

STEP 3: Where do we want to go?

INITIATE

STEP 6: Measure / COE

Category Management Process / Category Development Planning

Define the categoryDefine success

Roles & ResponsibilitiesIdentify team members

Scope and TimingDefine expectations

Determine who is shopping, what are their needs, how do they buy?Understand barriers and opportunities.

Execute the Plan

Continual MeasurementConduct Correction of Errors

Track Progress and adjust plan accordingly Assess category performance

(market, competitors, & our). Define the winners and how they win.

Develop category, sub-category & segment strategies. Build

financial plans to achieve category role and strategies.

Develop the plan: the correct products, shelf arrangement, off-shelf product placement, category adjacencies, department layout,

availability, pricing & promotion.Strategic Pricing / Promotion / In-Stock / Assortment / Line Review

STEP 4: How do we get there?

STEP 5: Implement

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WHO IS SHOPPING? WHO IS CONSUMING?

CONSUMER not SHOPPER

Baby Formula

Baby needs caregiver to provide her with

nourishment

CONSUMER and

SHOPPER

Sports Drink

College jock is heading back to dorm from

practice; He needs a quick energy

boost

SHOPPER not CONSUMER

Video Games

Aunt buys game for her nephew; She checks the

package for ratings

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THE DIFFERENCE

Baby Formula

Baby needs caregiver to provide her with

nourishment

THE SHOPPER (Mom)

WHO is she? Are there differences by income, age, race, religious beliefs, etc.?

WHERE does she live? Does that make a difference? Is she traveling or at home?

WHEN does purchase? At home, when her husband watches the baby? Does she stock-up or watch for sales?

HOW does she shop? Take the bus vs minivan?

WHY did she choose to feed the baby with formula? Why does she pick that brand or ingredient?

THE CONSUMER (Baby)

WHO is she? Is she a new-born or almost into semi-solid / solid food?

WHAT flavor or ingredient makes her happy when her mom feeds her?

WHERE is she when she is hungry? Store? Home?

WHEN does she get hungry? Late at night makes her tummy hurt so she needs the special allergy formula.

HOW much can she drink before she is full?

WHY does she need formula?

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THE WHY BEHIND THE BUY

What is the reason for a purchase by a shopper?

• Is it the price?• Is it convenience? • Is it a particular brand?• Does she likes a particular Retailer?• Other?

There can be many motivating factors…

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ABQQ GRID

Behavioral Attitudinal

Qualitative

QuantitativeInternet Survey

Mail Survey

Mall-Intercept Survey

Telephone Survey

Focus Groups

Mail Survey

Mall-Intercept Survey

Telephone Survey

Scan Data

Household Panel

Loyalty Card Data

In-Store Observation (Quantitative)

In-Store Observation (Qualitative)

In-Home Ethnographies

ShopAlongs

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ABQQ GRID DATA SOURCES

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DATA POINTS TO INSIGHT

WhoWhat

WhereWhenHow

Why Attitudes Behaviors Scorecard

ACTIONABLE INSIGHTS

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STEP 1: Know your shopper

STEP 2: Know your Competition and your

Category

STEP 3: Where do we want to go?

INITIATE

STEP 6: Measure / COE

Category Management Process / Category Development Planning

Define the categoryDefine success

Roles & ResponsibilitiesIdentify team members

Scope and TimingDefine expectations

Determine who is shopping, what are their needs, how do they buy?Understand barriers and opportunities.

Execute the Plan

Continual MeasurementConduct Correction of Errors

Track Progress and adjust plan accordingly Assess category performance

(market, competitors, & our). Define the winners and how they win.

Develop category, sub-category & segment strategies. Build

financial plans to achieve category role and strategies.

Develop the plan: the correct products, shelf arrangement, off-shelf product placement, category adjacencies, department layout,

availability, pricing & promotion.Strategic Pricing / Promotion / In-Stock / Assortment / Line Review

STEP 4: How do we get there?

STEP 5: Implement

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CONSUMER DECISION TREEA Consumer Decision Tree is a market research study based primarily on consumer research (surveys and at shelf observation) and determines the thought process behind a purchase decision.

Includes Attitudinal and Behavioral Data

Reveals the reasons why consumers buy a certain product

Incorporates information based on consumer recollection from past behavior

Developed based on needs assessment

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MARKET STRUCTUREA Market Structure is a market research study based on actual purchase data across all channels. Statistical analysis and interpretation of product interaction (substitutability) drives hierarchy. Market Structures details the long term types of decisions that consumers make from a overall product portfolio.

Behavioral Data

Transactional data based from household panel

Reflects purchase history over a period of time (typically 52 weeks)

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KNOW THE COMPETITION

What are competitors?

How are they identified?

Who are key competitors? • Channel• Chain• Category•Occasion/Trip Type

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CONNECTION TO SEGMENTATION

Customer/Shopper

Right ProductRight Product,• Modular

• Promotion

• Assortment

• Demographics

Right Time,Right Time,• Seasonal

• Events

• Promotions

Right Place,Right Place,• DC

• Store

• Market

Right QuantityRight Quantity• Display

• Open Stock

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STEP 1: Know your shopper

STEP 2: Know your Competition and your

Category

STEP 3: Where do we want to go?

INITIATE

STEP 6: Measure / COE

Category Management Process / Category Development Planning

Define the categoryDefine success

Roles & ResponsibilitiesIdentify team members

Scope and TimingDefine expectations

Determine who is shopping, what are their needs, how do they buy?Understand barriers and opportunities.

Execute the Plan

Continual MeasurementConduct Correction of Errors

Track Progress and adjust plan accordingly Assess category performance

(market, competitors, & our). Define the winners and how they win.

Develop category, sub-category & segment strategies. Build

financial plans to achieve category role and strategies.

Develop the plan: the correct products, shelf arrangement, off-shelf product placement, category adjacencies, department layout,

availability, pricing & promotion.Strategic Pricing / Promotion / In-Stock / Assortment / Line Review

STEP 4: How do we get there?

STEP 5: Implement

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SWOT DEFINITION REVIEW

Strengths• A firms strengths are it’s resources and

capabilities that can be used as a basis for developing a competitive advantage.

Weaknesses• The absence of certain strengths may

be viewed as a weakness. In some cases the flip side of a strength.

Opportunities• Changes in the external environment

may reveal certain new opportunities for profit and growth.

Threats• Changes in the external environment

may also present threats to the firm.

It’s much less dangerous than calling

in a SWAT team!

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STRATEGIES AND TACTICSStrategy and Tactics for Car Air Fresheners category

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STEP 1: Know your shopper

STEP 2: Know your Competition and your

Category

STEP 3: Where do we want to go?

INITIATE

STEP 6: Measure / COE

Category Management Process / Category Development Planning

Define the categoryDefine success

Roles & ResponsibilitiesIdentify team members

Scope and TimingDefine expectations

Determine who is shopping, what are their needs, how do they buy?Understand barriers and opportunities.

Execute the Plan

Continual MeasurementConduct Correction of Errors

Track Progress and adjust plan accordingly Assess category performance

(market, competitors, & our). Define the winners and how they win.

Develop category, sub-category & segment strategies. Build

financial plans to achieve category role and strategies.

Develop the plan: the correct products, shelf arrangement, off-shelf product placement, category adjacencies, department layout,

availability, pricing & promotion.Strategic Pricing / Promotion / In-Stock / Assortment / Line Review

STEP 4: How do we get there?

STEP 5: Implement

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CATEGORY ROLES

Assigned role based on a cross-category quantitative analysis that considers the: Consumer (Step 1)

Retailer (Step 2)

Supplier (Step 2)

Marketplace (Step 2)

Category Role

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TRADITIONAL CATEGORY ROLES

DestinationTo be the primary category provider and help define the retailer as the store of choice by delivering consistent, superior target consumer value

Traffic Building

Turf Protection

Transaction Building

Excitement Creation

Cash Generating

Routine/PreferredTo be one of the preferred category providers and help develop the retailer as the store of choice by delivering consistent, competitive target consumer value

Traffic Building

Transaction Building

Profit Generating

ConvenienceTo be a major category provider, help reinforce the retailer as the store of choice by delivering frequent, competitive target consumer value

Transaction Building

Profit Generating

Image Enhancing

Occasional/SeasonalTo be a category provider and help reinforce the retailer as the full service store of choice by delivering good target consumer value

Traffic Building

Profit Generating

Excitement Creation

Category Role Example Strategies Quick Definitions

Transaction Building• Higher Ring-up, Impulse Purchased

Cash Generating• High Turns, Frequently Purchased

Profit Generating• High Gross Margin, High Turns

Traffic Building• High Share, Frequently Purchased, High % of Sales

Turf Defending• Used to Draw Customers

Excitement Creating• Impulse, Lifestyle Oriented

Image Enhancing• Frequently Purchased, Promoted, Impulse, Seasonal

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RETAILER HYBRID MODEL

Win Play Show Brand Value Price Leadership “Always” High Share High Turns Profitable High Year over Year (YOY) Growth

Rates Aligns with corporate strategies Promoted Differentiation Disproportionate investment by Wal-

Mart Supplier – Wal-Mart Co-Marketing On or Ahead of shopper Trends

Difficult to differentiate

Some Brand Value Consistent

Performance Limited Marketing

Support

Price and differentiation is all commodity

No marketing support

- Price Point Leads all Criteria for all Segments - Good – Better – Best Pricing

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CATEGORY GROWTH

+ + =Penetration Amount Purchased Volume

How do You Move the Gears?•Penetration – Convert shoppers to buyers – increase the number of people that buy the category at a given retailer (Increase Buyer Conversion)

• Frequency – Increase the number of trips buyers purchase the category at a given retailer (Increase the Buy Rate through more Trips)

• Amount Purchased – Increase the amount of the category that buyers purchase at a given retailer (Increase the Buy Rate through more Volume per Trip)

Frequency

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STEP 1: Know your shopper

STEP 2: Know your Competition and your

Category

STEP 3: Where do we want to go?

INITIATE

STEP 6: Measure / COE

Category Management Process / Category Development Planning

Define the categoryDefine success

Roles & ResponsibilitiesIdentify team members

Scope and TimingDefine expectations

Determine who is shopping, what are their needs, how do they buy?Understand barriers and opportunities.

Execute the Plan

Continual MeasurementConduct Correction of Errors

Track Progress and adjust plan accordingly Assess category performance

(market, competitors, & our). Define the winners and how they win.

Develop category, sub-category & segment strategies. Build

financial plans to achieve category role and strategies.

Develop the plan: the correct products, shelf arrangement, off-shelf product placement, category adjacencies, department layout,

availability, pricing & promotion.Strategic Pricing / Promotion / In-Stock / Assortment / Line Review

STEP 4: How do we get there?

STEP 5: Implement

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EXECUTION

Reconciliation

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STEP 1: Know your shopper

STEP 2: Know your Competition and your

Category

STEP 3: Where do we want to go?

INITIATE

STEP 6: Measure / COE

Category Management Process / Category Development Planning

Define the categoryDefine success

Roles & ResponsibilitiesIdentify team members

Scope and TimingDefine expectations

Determine who is shopping, what are their needs, how do they buy?Understand barriers and opportunities.

Execute the Plan

Continual MeasurementConduct Correction of Errors

Track Progress and adjust plan accordingly Assess category performance

(market, competitors, & our). Define the winners and how they win.

Develop category, sub-category & segment strategies. Build

financial plans to achieve category role and strategies.

Develop the plan: the correct products, shelf arrangement, off-shelf product placement, category adjacencies, department layout,

availability, pricing & promotion.Strategic Pricing / Promotion / In-Stock / Assortment / Line Review

STEP 4: How do we get there?

STEP 5: Implement

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MEASUREMENT & CORRECTION OF ERRORS

Monitor and Review

Review key metrics for

success

Agree upon dates to review

results

Crystallization and action

The Monitor and Review process includes three important components:

1. Review the key metrics for success (the report card of results)2. Agreement upon the dates to review the results3. Crystallizing the insights and results and taking appropriate

action

Remember, the category management process is dynamic, not a one time event. It is a continuous cycle of attitudinal and behavioral analysis and action.

Execution

CATEGORY MANAGEMEN

T: SHARING

BEST PRACTICES

Doing Business in Bentonville April 16, 2009

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INFORMATION AND REGISTRATION

Marshall McCall (479) 936-5171 mmccall@nwacc.edu

James Thulin(479) 936-5107jthulin@nwacc.edu

Visit http://www.nwacc.edu/corporatelearning