Category Management: The Ultimate Relationship?

Retailers are wary of programs that promise much and deliver no more than a typical display program. "It's logical that suppliers may come in and try to make their programs as large as they possibly can and become category managers," says Nancy Smith, national promotions and P-O-P manager at Southland Corp., owners of the 7-Eleven chain. "Part of our business is to work with the supplier and find the right way to fit both of our goals in so the product and merchandising help our customers.""The largest risk for a supplier in a category-management relationship is that you really must have your house in order," warns Debbie Yurgen, director of trade marketing for Cleveland-based Imperial Home Decor Group. "In a true category-management program, you have to be truthful and open with the information that drives the business and makes that retailer successful. In some cases, that means making tough recommendations on your own products."Imperial's category-management program focuses on presenting its product line in various formats to fit each retailers' needs. It also includes receiving sales data, analyzing trends and fine-tuning inventory and presentations over time. "True category-management programs revolve around all of the essential elements of good retail management: product, advertising, merchandising, training and information systems," she stresses. "That's a lot of work. But the good news is that when someone can deliver that entire package, it's hard for competitors to get up to speed and take your space."A pivotal element in such programs comes in receiving data on a regular (and sometimes almost immediate) basis and analyzing it to fine-tune the merchandising, presentation and stocking. At Imperial, sales data from stores using its category-management program are sent back to the marketer in several ways, including via electronic data interchange (EDI), although more often it's sent on a monthly or quarterly basis, depending on volume. A number of suppliers are using EDI to work with retailers such as Wal-Mart and Kmart."My vision is to receive P-O-S data on a monthly basis, which we can input into our databases to spit out productivity measurements by categories we both agree are important, such as Return On Investment by Category, Sales per Linear Foot by Category and Margins by Category," Yurgen says. "Typically, mass merchants are far ahead of hardlines retailers in providing this data, but the hardlines areas are catching up."Kodak, too, relies on marketing data as well as retailer-supplied sell-through data to refine its presentations in each retail outlet. The company receives turn rates and sell-through to know when to replenish, and uses that to gauge how well its programs are working."It's easier than you might think to learn what specific elements drive sales when you have specific sales data," says Kristi Marchbanks, vice president and general manager of Kodak's Retail Services Division. "It's a matter of comparing sales to how the product was packaged, shipped and displayed in that prepack." With permanent displays, she adds, marketers look at the planogram -- which is becoming more set, she notes -- and figure movement, then calculate incremental square footage you're hoping to gain and determine the results."Then we compare that across an entire channel of trade, keeping the demographics for each store consistent," Marchbanks says. "The price points are the same, so the only variables are placement or shape of display, header, or some other unique P-O-P element that we can track. That tells us how much lift a specific display will give us and allows us a better idea of what incentives we should be offering to the retailer to carry it."Some companies are becoming aggressive in their category-management programs, particularly if they are already the dominant brands. Kraft, for instance, often holds the number-one or -two position in food categories, giving it a strong impetus to approach retailers about category-management options."With our strong position with so many key brands, retailers often want to talk to us about category management," says Mike Polk, vice president of category sales management and strategy at Kraft. "They're looking more and more at their stocking and merchandising levels and noting whether those match their sales levels. Kraft tends to wind up underrepresented from a shelf and merchandising perspective based on sales, because retailers tend to want to offer more variety. But they tend to offer more than they need to. Our category-management tools help ensure we get our share of facings."Retailers, especially supermarkets and mass merchants, have a growing sophistication in tracking numbers and receiving immediate sales data via UPC codes. "Retailers definitely are pretty far down that curve now," Polk says. "They're ready and able to use the tools we're providing. Our goal is to provide them with 80 percent of the insight they're getting now with 20 percent of the resources required. These systems have really been able to get us in the door and work at a higher level with the retailer."Category-management programs are one key element promoted by a new study produced by the Joint Industry Project on Efficient Consumer Response. Several key recommendations were provided on dealing with in-store fixturing and P-O-P materials. Calling category-management tools "a key enabler" for squeezing waste from the system, the report ties them together with "ABC" (Activity-Based Costing, also called Activity-Based Management) as solutions for ensuring products arrive at the shelf when they're needed, with facings expanded for popular products at the expense of those less popular, or by using space derived from smaller case packs.Many of the suggestions call for "changes by both the retailer and supplier trading partners, requiring their cooperation," the report summarizes. "This cooperation includes optimizing business processes ranging from ordering and invoice payment to streamlining the procedures for resolution of discrepancies in deliveries or invoices. Retailers and manufacturer trading partners should work together on new product introductions, assortment management, and promotion strategy and tactics."

Category Management: The Ultimate Relationship?

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