Category management is a retail and supply management concept aimed to manage different product groups. The product are categorized in groups of similar characteristics. These groups are called the product categories. Prerequisite of successful category management is the agreement and cooperation of supplier and retailer.
Category management is considered as the most advanced business tools for improvement of business results. Category management has the aim to create the value to the consumer and improve business result, through the cooperation of retailer and supplier.
Category management as a concept was developed at the end of the 80s of the 20th century in the developed retail markets. The most developed retailers and their key suppliers initiated communication with the purpose of joint cooperation on management of product categories.
Usually, that main supplier from specific category is nominated by the retailer to be a category captain. The category captain is having the closest and most regular contact with the retailer. Category captain is investing time, effort, marketing resources and financial investment into the strategic development of the category within the retailer’s premises. As reward the supplier is given the authoritative position within retailer’s outlet. The category captain is often the supplier with the largest turnover within the category.
Space allocation is important aspect of category management, since the layout of product setting is directly impacting the product sellout, revenue, profit, stock levels, retailer working capital, stock-out, customer satisfaction… The list of effects of good or wrong decisions to the retailer business is very long.
For example, if the slow moving product is given to large stock and shelf space, than we have situation where the working capital is frozen, due to low rate of return on investment. Also, this is generating the opportunity cost, since some more profitable products could have been sold with the same resources. Slow movers can became obsolete and written off in case of over stock.
On the other hand, if the narrow space is given to the fast mover product, then the brand strength is not utilized to the full extent. The shelving requires additional physical effort through frequent filling of small quantities. The product is stock out more frequent. The customer dissatisfaction grows. The retailers are sometimes uneducated or they simply try to push the product that does not sell, just to get rid of the stock. But why the high stock is there in first place at all? The answer for this should be the proper space allocation.
The category management stays as the top priority for large suppliers, since retailers tend to neglect the market leaders in some cases. Category management should be the base stone for the cooperation between suppliers and retailers.
Laurus Nobilis has 14 years of experience in FMCG business. In 2007 he has started the Biz Development web site dedicated to development of managerial skills.
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