For the past 20 years, category management has been embraced by consumer packaged goods (CPG) brand owners and retailers alike for its ability to increase profitability. The discipline provides the primary platform for CPG companies to communicate strategic and tactical category recommendations to retailers. Real Results magazine spoke with Gordon Wade, managing partner and director of best practices of the Category Management Association (CMA), about some of the recent trends that have the potential to transform the category management discipline.
What trends are causing CPG brand owners to focus more on the category management process as a means to drive growth?
There are several trends in the CPG marketing ecosystem that are increasing the importance of category-based thinking. First, the retailer's control of the shopper's experience at the shelf is growing, while traditional brandbuilding tools and brand equity is declining. Retail buyers want to hear how a CPG brand is going to help grow the category or its margins. Second, it is becoming more important to market directly to the shopper. Just as retail buyers think in terms of categories, shoppers think in terms of need satisfaction at the category level. For instance, a consumer's shopping list is more likely to include category needs (e.g., detergent or cookies) instead of brands (e.g., Tide or Nabisco). Today's consumers are less brand loyal, and instead use e-commerce and mobile technology to find the best deal. Finally, big data — gathered from sources such as loyalty cards, social media interactions and shopping-related apps — offers promising results for those who can harness insights from it and apply it to the category management process.
Shoppers are more empowered today than ever before. Modern retailing offers them a myriad of ways to purchase a product — whether it's online, through a brick-and-mortar store, or via a mobile device. How is this affecting the traditional approach to category management?
With more choices than ever before, shoppers no longer rely on one retail format to meet all of their disparate needs. As such, retailers are seeing volume and profit leak from their categories. One way retailers are gaining insight into which categories are being impacted is by analyzing their loyalty card data. Given these category disruptions, CPG companies can add a lot of value to retailers by presenting shopper insights about how they can help drive category growth. It also opens the door for CPG manufacturers to collaborate with retailers on multi-category solutions to recapture some of the lost volume. For example, a food retailer might leverage its strength in healthy foods to sell volume in other categories such as foot care, blood monitoring devices and skincare by creating a multi-category solution for diabetic care.
How is big data impacting category management?
Big data is often used to describe the gigabytes of disparate data that can be gathered from multiple sources — such as point of sale, loyalty cards, customer feedback and social media interaction — that if analyzed properly could reveal valuable insights into shopper attitudes and behaviors. Yet, most CPG companies lack the analytical approach, software with predictive analytics, and trained analysts to extract meaningful conclusions and actionable insights from the data. Marketers that can determine how to harness disparate data sets of behavior — such as buying behavior, social media behavior, mass media consumption behavior and lifestyle behavior — to learn more about need states and behavior at the household level will be most successful. Data at the household level could then be rolled up into shopper segment insights and then into geographic store clusters. Those insights could also be applied to the supply chain to enhance forecasting and replenishment capabilities. It will take the collaboration of software designers, social media gurus, retailers and marketers to extract these types of shopper insights from big data, and then the marketers will need to determine how to leverage those insights to alter buying behaviors. Mastering big data is quite possibly the greatest marketing opportunity of this decade.
How can CPG companies determine where they fall on the category management curve?
The CMA has identified five stages on the category management maturity curve — embryonic, adopting, advancing, excelling and aspiring — based on a company's approach to data, analytics and software, organizational skills, and process and culture. For instance, a company in the embryonic stage may share limited geographic data with its retail partners, and work only with Microsoft tools, without using any analytics. A company in this stage of the maturity curve tends to view the retailer as the adversary and focuses on sales and trade-dollar analysis. However, companies in the advancing stage are more likely to leverage retail optimization tools to analyze data at the household level. For companies at this stage, at least half of their category management staff will have completed certification, and the company will be recognized as a captain in major accounts. The aspiring stage is what we envision as the realistic future of the category management discipline, where big data and predictive analytics are integrated across the value chain, driving planning and executional excellence. We are not there yet, but we believe it is possible.
For companies that want to get serious about category management, what resources should they consider?
First off, achieving category management mastery will require investments in personnel and software. A larger, better trained staff with access to advanced planning and analytics technology will be necessary to mine gigabytes of household-level data for insights, respond to retailers' demand for individual store assortments and manage a more complex supply chain.
Given that category management is dependent on other corporate functions such as marketing, product development and sales for its success, how can CPG companies calculate the return on investment (ROI) of their category management investments?
While calculating the cost of category management programs is simple, determining the sales revenue that can be directly attributable to the category management function is more challenging. Some companies try to capture the ROI based on calculating the value of attaining category captaincy, or the profitability of an account that has accepted a new item. Others attempt to quantify the value of a specific planogram option, or incremental account activity that can be attributed to insights derived from category management analysis. The CMA offers two additional alternatives — certification and benchmarking — as ways for companies to measure their category management functions against industry standards.
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