Technology progresses and the necessity of keeping the business and Teams up to date require more and more decisions linked to Technology and tools. Decision maker shave to face the tough challenges of selecting whether it’s better to invest internally and have the company develop its own tools, or to use a 3rdParty. The final choice depends on each company’s specific needs, resources, and strategic goals. It’s essential to weigh the advantages and disadvantages of both options to make an informed decision.
This simple tool has been designed to help you make that choice.
You might also be interested in the following articles:
Managing Cultural Change & Business Impact in a Digital Transformation Journey
How to Implement Category Management
How to Select your Category Management Analytics Platform
Category performance analysis is the process of reviewing and analyzing a specific product category to understand its performance and identify opportunities for improvement.
Here are a few reasons why category reviews are important:
To understand the category’s market position: By reviewing the category’s market share, customer base, and competitors, businesses can get a better understanding of their position in the market.
To identify opportunities for growth: Category review can help businesses identify areas for growth and development within a specific product category.
To inform strategic decision-making: By understanding the category’s strengths and weaknesses, businesses can make more informed decisions about their marketing, sales, and product development strategies.
To measure category performance: Category reviews can help businesses track the performance of a specific product category over time and identify areas of improvement.
To improve customer satisfaction: By reviewing customer feedback and data on customer behaviour, businesses can identify opportunities to improve the customer experience and increase satisfaction.
Overall, category review is an important tool for businesses to use to optimize their performance in a specific product category and achieve their business objectives.
1. Define the Scope of the Analysis
This is a critical step that needs to be specified and agreed upon with the stakeholders before running the analysis, as it can bring different insights and action plans. Here are a few steps for defining the scope of a category performance analysis:
Determine the specific product category that will be analyzed, such as consumer electronics, sporting goods, or home appliances. The definition of the category will be different in each company and of course, in each Retailer account. Therefore, make it clear which definition you are using for the whole analysis.
Determine the time frame: Decide on the time frame for the analysis, such as the past year or the past five years.
Define the geographic Scope: Consider whether the analysis will focus on a specific Retailer Account or will be conducted globally.
Identify the target audience: Determine the specific audience for the analysis, such as consumers, retailers, or distributors.
Define the business objectives: Consider the business objectives that the analysis will help to achieve, such as increasing market share or improving profitability.
Overall, defining the scope of the category performance analysis involves determining the specific product category, time frame, geographic scope, target audience, and business objectives that the analysis will focus on. This helps to ensure that the analysis is relevant and useful for achieving the business’s objectives.
2. Gather Data
At the end of the analysis, we would like to develop an action plan to grow sales, gain market share and satisfy our Shoppers. Here is the data set that you might need to gather for your analysis
Performance: Sales and Market Share
There are 2 types of sales
Sell Out is the number of products sold from the retailer to the end customers
Sell In is the number of products the manufacturer sells to the retailer,
As the category performance analysis reflects the Shopper behaviour and trend, so Sell Out will be more appropriate to use in the analysis.
The company’s goal is to grow higher than the others.
Market Share Loss or Gain could also reflect that result.
😊 My brand grows higher than others > I gain market share
☹ My brand grows lower than others > l lost market share
Range and Distribution:
Number of SKUs: Your SKUs and your competitor’s SKUs.
Count every item in the Shopper View. For example,
Orange Flavor 8 g in Single pack
Orange Flavor 8 g pack 6
Orange Flavor 8 g pack 24
All these 3 SKUs might be only one SKU for you, but it is 3 SKUs for Shoppers. And each pack type serves a different shopping mission. So you should count it as 3 SKUs.
New Item List
List of the New Items available in the market
It is to measure the performance to identify our potential new items
Distribution of each SKU
Numeric distribution is the number of stores that carry a particular product. This type of distribution focuses on the number of stores that carry a product, regardless of each store’s size or sales potential.
Weighted distribution takes into account not only the number of stores that carry a particular product but also the importance of each store. It measures how many of the high-performing stores carry the product or service. For example, if a company distributes its product to 100 stores, and 20 of them generating sales 80% of total business, the store-weighted distribution would be 80% instead of 20%
In summary, numeric store distribution is the number of stores carrying a product or service. In contrast, store-weighted distribution is the proportion of high-performing stores that carry a product or service.
Shelf Space Allocation of each SKU: Your brands and Competitors
Count the number of display facing by SKUs
Count all brand’s shelf space
Availability
Stock Days
Service Level
Promotion
Financial data: This includes information on the financial performance of the category, such as revenue, profits, and expenses. It also includes information on the financial performance of specific competitors within the category.
Customer data: This includes information on the demographics, psychographics, and behaviour of customers within the category. This could include data on age, gender, income, education, location and so on.
Industry data: This includes information on the overall size and growth of the market, as well as information on trends, drivers, and challenges within the industry.
Social Media data: If the category is a consumer good and has a presence online it’s important to gather data from social media analytics and feedbacks on the product or service.
Other External data: it could be economic, political, legal and other external factors which could affect the category.
It’s important to gather data from a variety of sources in order to ensure that the analysis is comprehensive and accurate. Additionally, data should be as recent as possible, to ensure that the findings are relevant and up-to-date.
The most popular measurement is the growth-share matrix, also known as the Boston Consulting Group (BCG) matrix, which assesses a company’s product portfolio and determines which product or segment should receive the most investment.
The grid is based on the Brand Market Growth Rate and Brand Market Share and is divided into four quadrants. Brand strategy in each quadrant should be different.
Star: Expand
Question Mark: Invest or Divest
Cash Cow: Harvest
Dog: Divest
The growth-share matrix can help a company prioritize its investment decisions and allocate resources effectively. However, it has some limitations, such as its reliance on market share as a sole measure of a product’s success and its failure to consider other factors that may affect its performanceใ
Customer Analysis: Study the brand’s customer base to understand their demographics, preferences, and behaviors.
3. Opportunity Lost Analysis
Quantifying the number of expected sales would help us know how much we should invest.
There are 2 possible ways.
3.1 Growth opportunity loss
It refers to potential business growth that was not realized due to missed opportunities or poor decision-making. It can be caused by various factors, such as a lack of resources, inadequate planning, or a failure to seize opportunities as they arise.
The calculation is
My Brands Sales Growth = A
My Brand Sales Last Year = B
My Benchmarked Sales Growth = C
Formula = (A-C) x B
3.2 Fair Share Gap
The fair share gap is the difference between a company’s actual market share and its potential market share, also known as its “fair share.” It is typically used to measure a company’s performance in a specific market.
To calculate the fair share gap, you can use the following formula :Fair share gap = Actual market share – Potential market share Potential Market Share can be, for example
Your company’s market share combining all brands
Your brand market share on average in many markets
Your targeted competitor’s market share
4. Competitors Analysis
Competitor analysis studies your brand’s competitors to understand their strengths, weaknesses, and strategies. It is an essential tool for businesses to stay competitive in their market and make informed strategic decisions.
To conduct a competitor analysis, you can follow these steps:
1. Identify your competitors: Who are the main competitors in your market? Next, make a list of all the companies that offer similar products or services.
2. Benchmark your brands vs them in terms of
Number of SKUs,
Assortment Variety for different shopper group
Pricing
Promotion: Above the line and below the line
Display at the stores
3. Evaluate their strengths and weaknesses: Identify your competitors’ key strengths and weaknesses,
By conducting a competitor analysis, you can better understand your competitors and their strategies, which can help inform your own business decisions.
5. Brand Perception Analysis
The process of studying how consumers perceive a brand and its products or services. It is to understand their brand’s strengths and weaknesses and identify improvement opportunities.
There are several ways to conduct a brand perception analysis, including:
5.1 Surveys are a common method for collecting data on brand perception. You can use online tools or hire a research firm to conduct a survey and gather data on consumer attitudes and perceptions of the brand.
5.2 Focus Groups involve gathering a small, diverse group of consumers and facilitating a discussion about the brand. This can provide valuable insights into how consumers perceive the brand and its products or services.
5.3 Social Media Analysis: Social media platforms can be a rich source of data on brand perception. By analyzing social media conversations and sentiments, you can understand how consumers feel about the brand.
5.4 Customer Feedback: Customer feedback, such as online reviews or comments on social media, can provide valuable insights into how consumers perceive the brand.
5.5 Brand Tracking Studies: These are long-term studies that track changes in brand perception over time. They can be useful for identifying trends and patterns in consumer attitudes towards the brand.
Last but not least….
If you want to focus only on the action, the category diagnostic could tell you the cause of sales change in a click. The detail SKUs by SKUS will let you fix the problem at the right SKUs for each challenge.
Common Traps to Avoid
Below are the most common traps we have seen happening during a Category Management approach implementation.
Relying too heavily on subjective opinions
Failing to consider the competitive landscape
Ignoring the customer perspective:
Failing to update the analysis regularly
Success Factors
What a company could help brand manager to successfully implement brand review process.
Solidify RACI (response, account, consult and inform) of each brand review step
Schedule the timeframe clearly
Action Driven Data Analytic Solution, so that team can build the action plan efficiently.
Arrange the training regular for new comers and refresher training for the existing member
Read More about Brand Review and Implementation at Retailer Stores
How Analyzing Sales Drops Can Uncover Key Pain Points
In the fiercely competitive retail market, every player is compelled to undertake numerous activities, some of which yield positive results while others do not. Conducting regular category or brand review analyses is a standard practice for both retailers and suppliers to gain insights into shopper behavior and their objective is simple: identify the causes and take corrective actions. For the corrective actions to be efficient, they need to address the right root cause
In this article, we review how data patterns help identify the 5 main causes of sales drop so the right corrective actions can be setup and address the right pain effectively
1. Range Change Impact on Sales
Shoppers can switch to other items or switch Retailer stores.
Shoppers visit the stores to purchase the products, so range variety is the most critical factor for Shoppers to choose the stores. When a Retailer deletes the SKUs, what several scenarios can happen:
Shoppers switch to other products within the same brands
Shoppers switch to other brands in the same category
Shoppers switch to other categories
Shoppers Switches to other Retailer Stores
We can reduce the scenario by 2nd and 3rd if we customers well the Shoppers decision tree
Data pattern: How can data help you find out if this is the right scenario
Sales lost only the deleted items, while other items can be maintained or slightly increased
Sales dropped in the month of item deletion
Sales dropped across all channels that were selling the product before
Sales increase in other stores nearby the stores where the product used to be sold
Corrective Actions:
Re-negotiate the distribution agreement
Launch new items
Increase visibility of remaining top selling items
2. Price Change
Sales significantly dropped across all channels during the month of price increase.
When Brands increase the price, Shoppers behavior’s are often grouped in 5 main types, depending on Brand Loyalty and how important the category for shoppers is.
Shop the product as normal
Switch brands for a while and come back later
Switch brands and never come back
Stops buying in the category for a while and return to buy that brand later
Stop buying in this category
Data pattern: How can data help you find out if this is the right scenario
Sales units per store dropped only in the increased price items.
Sales units per store start dropping in the month of the price increase.
Sales units per store dropped across all channels. It might be a different level of decrease, but it should decrease.
No issue with the Stock and Service level in the month before or that month
Corrective Actions:
Create a promotion after the price increase
Ensure the price change are proportionally equal across all channels
Ensure your price index level is maintained with competitors’ brands
3. Availability
Verify by checking the sales pattern of the store with no stock issue.
When Shoppers face out-of-stock, 4 choices depending on brand loyalty.
Delay the purchase to the next shopping trip
Switch products on return to the Brand when it is available again
Permanently Switch Product or Brand
Switch to nearby store
Data pattern: How can data help you find out if this is the right scenario.
Sales will drop only during out-of-stock periods. The time period required for shoppers to go to scenario 3 depends on the Store format: the smaller the format, the shorter the period.
If the availability challenge happens in Store with a service level greater than 80% in the month before and that month, then the challenge is not availability.
The substituted items of these products of these items – from that brand or other brands in the range – have a sale uplift
Market share is decreasing.
Corrective Actions:
Identify in which stores availability issues are happening to define whether the challenge is localized or global
Review your service level and setup a common objective with your retailer
Sharpen your sales forecasts and sales targets by store with your retailer
4.Weak Promotions
Promotion plays an essential role as a retail sales driver. It is also most time-consuming and least profitable activity for both Retailers and Suppliers.
It requires 4 success factors for Shoppers to purchase a promotion item:
The promo mechanism and product are attractive
The Shopper can see the promo signage
Shoppers can find that promo product
The promo product is available
If one of these factors fails, it might decrease sales due to the promotion in case we performed well last year.
Data pattern: How can data help you find out if this is the right scenario
Brand Promotion sales value decreases
The contribution of Promotion sales is dropping
The number of promotions is dropping
The sales uplift of promotion items is dropping
There is no issue with this item’s Stock and Service level in the month before or the month of the promotion
There is no price increase for that items
A similar pattern is found across all channels and stores where the product is promoted
Corrective Actions:
Review the promotion product selection criteria
Re-Centre your promotion planning approach
Ensure each promotion objective is jointly decided with your Retailer
5. Distribution Change
From a Shopper’s Perspective, no distribution or out-of-stock has the same impact. It means Shoppers cannot purchase that product in the store at that time.
Therefore the data pattern is similar to availability issues
Sales will drop only in the period with no product in that store (or out of stock)
If the delivery mode is direct to stores, the issue might not happen to all stores. In the store with a service level > 80 in the month before and that month, sales should not decrease
The substituted items of these items should get some positive benefits in the same stores
This brand might lose market share, especially in the less brand loyalty category
Corrective Actions:
Ensure the products whose distribution is reduced are not Top selling items
Ensure all top selling items are distributed in every branch
Ask your retailer to share its distribution and assortment cluster strategy so you can help and suggest
Onuma Patthamakanokporn (nicknamed Bee) is Hypertrade’s Data Director. With a strong retail and data analytics background acquired with Tesco and Dunhumby in Thailand, she helps manufacturers in SouthEast Asia, Middle East and Africa make the most of their data sets to drive continuous and profitable growth.
In a recent article, Randy Bean was sharing on HBR that while investments in digitalization were poised to continue, most companies that invested (in a survey across Fortune 1000 companies) were harvesting very little of the expected results.
Randy then shares 4 main recommendations for companies that aspire to leverage data and analytics to transform their business: Focus on Cultural Change and its Business Impact; Start Small; Build Strong Partnerships and Don’t Forget About Data Ethics.
At Hypertrade, our job is to help medium-size – and often family- owned organizations leverage their data to transform their business. Therefore these 4 directions resonate strongly with what we do every day and the practical experiences and challenges our Teams have to address.
In this article, we want to focus on the Start Small and Focus on Cultural Change components. Yes, they do slow the project’s progress at its earliest stage, but the global buy-in and the transformation are stronger, delivering better and more sustainable results in the latest stages.
We are happy to bring our 5 cents sharing on some of the things we do – after failing and learning a few times – and that worked.
Cultural Change and Business Impact
Our experience tells us this is by far the most important success factor to be considered in a transformation project. While everyone seems to be aware of it, business agendas tend to neglect it as it is often perceived as an obstacle to a quick ROI. It’s going to take time and money; it will delay our ROI on technology investment are often heard. In reality, the time invested in driving Cultural Change and assessing Business Impact is a critical success factor.
Imagine a highly successful family business that grew over generations thanks to a visionary leadership, where each challenge was addressed and solved while maintaining a solid grip and control over business decisions and operations. Over time, some of the solutions found became bottlenecks, some of decisions processes that had been set up became brakes. When the Leadership perceives it is time to transform the organization, they are often aware about the changes it will require, but they also often underestimate the resistance to change they will face. Another factor that is also often overlooked is the Teams data literacy, and the appetite – or absence of – they might have towards data and technology tools.
In our practice, here are the activities we propose to our clients, when installing a merchandising, category management of CRM solution, to help their Teams throughout the transformation journey.
Key Process Mapping & Business Impact with Senior Management
The leverage of data will primarily impact 2 main business components: decision-making and communication. For each of them, it is important to identify:
for the selected processes, what are the commonly perceived and identified bottlenecks?
what impacts data and automation will generate on what already exists in terms of cultural values, time, costs, constituencies, and roles?
what do we want to maintain? what do we want to change and why? How do we want to build the continuity and alignment with the values in place?
what measurable results & gains are we targeting?
what tangible benefits for the Teams and individuals in place?
Preliminary Key Processes Workshops with Teams
Before even training teams on the new tools, we organize workshops on existing business processes. in these workshops, we put on paper the unofficial decision-making to understand how things are getting done, what are the bypasses that are used. We also put a lot of importance in understanding where are the pains both perceived and experience by the teams.
The information we capture at this stage are then used in internal communication to not only sell the project, but also to capture feedback to improve and adjust the initial plan back with Senior Management.
New Process Implementation’s Key Factors Of Success
Change Management Sessions
The Change Management Session are maybe the most important ones. They are also the most difficult. Their facilitation requires 3 mindsets: storytelling, selling, and planning. As in all workshops, the beginning sets the tone. We always begin with what already exists, with a probing approach (ie please confirm that our understanding is correct). And what already exists is:
the existing process
the existing pain points.
We then move to the selling part (what is in it for them, the Team, the Company, in this order) where we are careful to record the level of support.
We close with the planning part, where we will also ensure that we record all comments, suggestions and gauge the level enthusiasm.
Data Literacy Training
In order to ensure all teams, have a common level of understanding, we are taking 3 actions.
organize data training which are linked to the working processes teams are performing. In our industry, for example, these will be short sessions on Assortment, Promotion, CRM or Distribution Management
organize this knowledge in a wiki that me make available to all teams (HPT Pedia)
“Change In Motion” Sessions
For every new process working session, when we train about how a process is going to be done differently and supported by data (see Start Small ), we always follow the same workshop structure, building in what has been learned during the Key Processes workshop:
what is the process all about.
how it is being currently done.
the pains and obstacles admittedly met.
what are the pains and obstacle solving benefits the revised process will deliver?
what are the key differences between the old way and the new way?
what is the implementation plan?
We also make sure that enough time has been planned for the Transition. Giving it 2 or 3 months gives enough time with teams to become familiar with the process and the tool and have additional training sessions or refreshers when they require it.
Start Small
As a solution provider, we used to think that a project could be considered successful a few months after the complete setup of our solution. After all, our solutions are simple to use! Working predominantly in the retail industry, we therefore used to suggest a complete roll out across all categories and formats at once. Our rationale was that it was addressing the Client’s Senior Management who wanted it to be done quickly.
The results were almost always the same: only a few teams were really using data and they transformed their performances. But several other teams, people managing categories of a lesser importance, or related business units that were not directly concerned, had not been allocated enough time and efforts, and progressively lost interests.
We might have helped our client break data silos, saved time and helped capture business opportunities, but we did not help our client drive the complete transformation they had in mind.
Small… but connected
For a Start Small approach to be successful, we learned that it requires a clear definition of each of the following steps, the value each step will bring and their inter-dependencies. It sounds obvious, doesn’t it?
It is usually not too difficult for Teams to identify the several steps of change. What is more challenging, and requires reflection, is the order in which they would be best implemented. At least 5 factors need to be considered:
easiness to do.
level of potential resistance.
identifiable and measurable gains when implemented.
what impacts on other business processes?
what other steps it enables to do
Because each organization is unique, the importance of each factor will vary. What we are certain of, however, is that by-passing this assessment and planning session does not accelerate the project.
Change Blocks
Once the steps planning is finalized, we are starting to build what we call Change Blocks. A Change Blocks is made of 3 main elements:
A timeline that starts with the process mapping and ends with the beginning of the roll out.
The change drivers (process mapping, change management and change in motion sessions. Data Literacy, training and roll out)
The business characteristics of the process we want to change.
Each block must precisely detail what are the Change benefits for the Company, the Teams and the Individual
For each block, Business Processes, Data Literacy, Change Management (that include implementation plan) and Coaching sessions are estimated and planned. The communication and project management of the transformation becomes also much easier to visualize and comment.
A Change Block can be easily represented as a card (see below), and the Card put on a calendar.
An example of what we call a Change Block. It makes it easier to plan and visualize the change’s evolution
This practical approach to change management has proven to be generating a better traction and support from our Clients’ Teams:
a better visibility on why we are doing this and how this will happen.
a justified feeling of being part of the change, with a role to play.
an officialized “adaptation period” that decreases fear.
With continuous and permanent change, we are all directly or indirectly involved in change management projects. We are happy if you can share your thoughts and experiences with us!
Communicate: the first partnerships are internal
Keeping Teams informed and sharing information as openly and honestly as possible, from what is in it for them to how will this happen is maybe one of the biggest challenges. There is a set of populations where we pay a particular attention: the end-users. We want to help them build an awareness about the additional value they will bring thanks to the project.
In addition to the Change Management andChange in Motion sessions, we found that some additional media were quite useful: regular Newsletter, Leaderboards, as well as specific internal chat channels (we use Teams and love the “praise” function!) for example.
If the HR Team already runs these channels, it is great to embed the Project Communication into it. If not, they are easy to setup and a responsibility of the Project Management Teams.
We also love the solution WeGrow, which makes sharing field experiences and success fun and super-efficient.
“Effective communication is 20% what you know and 80% how you feel about what you know.”
Jim Rohn
Building on Rohn’s quote, heart (with solid planning!) might be one of the best drivers for change.
About the author
Frederic Klein is Hypertrade’s Operations Director and Frederic Etienbled is Hypertrade’s founder and CEO. With their Teams, they oversee the implementation and support of Hypertrade’s Merchandising, Category Management and Retail CRM solutions in South-East Asia, the Middle East and Africa. They both have prior extensive retail experiences. They can be reached at f.klein@hyper-trade.com and frederic.e@hyper-trade.com
Since the end of the pandemic, Artificial Intelligence (AI) and Machine Leaning (ML) are on everyone’s mouth. With our retailer’s client, assortment management, promotion, pricing, and CRM are among the most popular requests for automation.
As we are addressing these requests, we often see a gap between the clarity of the client’s objectives and the existing assets required to achieve them.
In practice, and to work properly, an AI or ML algorithm, be it applied to supply chain, CRM or assortment management, needs to be established on business rules. These business rules are themselves driven by parameters and conditions.
The missing assets often are these rules, parameters, and conditions. In this business case, we illustrate how these gaps can be identified and filled. We were working with a client establishing a model to manage its core and optional assortment.
Challenges
The lack of clarity in the product selection (or deletion) decision process across the Teams resulted in the unhealthy quadrant of decreasing sales, increasing inventory and out-of-stock, and decreasing profitability. This was due to 3 missing fundamentals.
Challenge 1: missing quantified rules on core assortment selection guidelines
Everyone was aware of the importance of the core assortment, and there were no business rules defining either how to build it or to maintain it.
Challenge 2: missing quantified rules on selecting stores to create clusters
The existing store clusters were defined based on geographies, and it was not sufficient to organize structured assortment clusters.
Challenge 3: missing quantified rules to select optional assortment by store cluster.
The same was also true for the optional assortment. In practice, out of the 50,000 products available in the database, it was up to the store manager of each of the 50 branches to make the products’ selection.
Actions
As the end goal was to build an assortment management model, both for core and optional assortment by store clusters, our first approach was to help the Client’s Teams to find the answers required to address the3 challenges.
Step 1: Build Answers
Questions on Core Assortment
What sales quantity benchmark does an item need to meet to be included in the core assortment?
What sales value benchmark does an item need to meet to be included in the core assortment?
What range structure rules need to be applied (number of brands, item by brands, price point)
What profitability benchmark does an item need to meet to be included in the core assortment?
What basket indicator benchmark does an item need to meet to be included in the core assortment?
What average level of sales contribution do we want to achieve with Core Assortment?
What components of supply chain need to be considered (service level, stock days, …)
Questions on Store Clusters
What elements of a store format need to be integrated in building the sore clusters?
What elements of a store size need to be integrated in building the sore clusters?
What elements of the store catchment area need to be integrated in building the sore clusters?
What elements of geography need to be integrated in building the sore clusters?
What elements of shopper insights need to be integrated in building the sore clusters?
What level of Stack ability do we want the core assortment to have across store clusters?
Questions on Optional Assortment
What elements of a store cluster need to be considered?
What minimum sales quantity needs to be achieved?
What elements of the supply chain need to be considered?
What shopper insights need to be considered?
Step 2: Filtering & Building
Once these answers were found, we simply applied them to the existing stores and existing assortment. Some adjustments were then made to both be simple and logical as well as incorporate existing commercial agreements with suppliers.
Step 3: Solidifying Maintenance Rules
The last step was to ensure these rules were implemented and executed, with a planned review of all their corresponding parameters.
Beyond the transcription of these rules in the black box to then generate automated alerts and reporting, a major effort was allocated to communication, training, and coaching. As changes do not work overnight, the implementation schedule was articulated across categories groups, providing enough time to both Merchandising, Operations and Supply Chain teams to adapt and adjust their routines.
Results
Over the next 6 months of implementation, as an average over the concerned categories, our client’s Teams could achieve some key breakthrough: Out of Stock reduced to 5%; sales grew by 6.2% with a total assortment that decreased by 32%, and stock days were reduced by 6.8%.
What does this show?
Any successful efforts in digitalization must start by reinforcing the missing fundamentals of business rules(that once digitalized can support automation), communication and training. In addition to delivering impressive results, this approach also reinsures teams and decrease the natural opposition to change.
About the author
Frederic Klein is Hypertrade’s Operations Director. With his Team, Frederic oversees the implementation and support of our Merchandising, Category Management and Retail CRM solutions with our clients. Before joining Hypertrade in 2019, Frederic held various senior positions across South-East Asia. Today, Frederic and his teams ensure the success of retail players in 8 different markets across 3 continents. Frederic can be reached at f.klein@hyper-trade.com
Being aware of data and its importance in both your decision-making processes and your collaborative approaches, you have decided to equip your Teams with the right tool. For each point, we have associated the most common related risks. The weighting of these risks depends on each organization’s specific settings
The following 10 Tips apply to both internal development options and solutions provided by third parties. A simple selection grid is provided at the end of this article.
FOREWORDS
WHAT IS CATEGORY MANAGEMENT ANALYTICS PLATFORM
A category management Analytics platform is a tool to aid in the analysis of the sales data, consumer behavior, demographics, market trends and other information to support the decisions that will improve sales, increase efficiency and optimize stock management.
It typically includes three main components: the types of data it can ingest, the analyses it can deliver and the recommendations it can build. Nowadays, the most powerful and advanced Category Management Analytics Platform are cloud based
WHAT ARE THE KEY DELIVERABLES FROM A CATEGORY MANAGEMENT ANALYTICS PLATFORM The most sought-after features form a Category Management Analytics Platform are:
It’s important that the system is easy to use and intuitive, so that your team can quickly and easily access the features they need. The flexibility of the user’s management is also part of this easiness to use, as allTeam Members might not require an access to all the functionalities and data. Ease of use should also integrate the easiness and speed of setup, both for technical teams and users.
Related risks:
failed onboarding
slowed adoption
2. Integration with Other Systems
If you have other systems in place, such as a CRM or an e-commerce platform, or various data sets coming in different format and shapes, it’s important to choose a category management system that can easily integrate with those systems. Internal or external capabilities of developing automated data flow is also an important factor to consider
Related risks:
incomplete data sets leading to additional work
additional costs
3. Scalability
Scalability is the ability for your selected solution to be able to ingest, crunch and manage an increasing number of data without endangering the stability, security and efficiency of the solution. As your business grows, you’ll want to choose a category management system that can scale with you. Scalability should be understood both from a technical and a service perspective.
Last, but not least, the innovation capabilities of the selected system should support your business growth and its evolution across several retail environments.
Related risks:
system failure
loss of Teams’ confidence
loss of Time and decreased agility
4. Customization
There are 2 approaches to customization. The first one is to consider how much customization is possible with the system, as this will allow you to tailor it to your specific needs. The second one is to consider how much your existing reporting can be adapted to make the most of what is already available. The balancing of these 2 approaches will not only impact costs, but also the time required for your selected solution to go live.
Related risks:
incomplete solution
additional costs
low ROI
5. Data Analytics & Reporting
A robust data analytics and reporting capabilities are at the core of a Category Management system. What needs to be considered here is the balance there is in the selected systems between informative reporting(it tells me what is), predictive reporting (it tells me what could be) and recommendations-oriented reporting(it tells me what could be done). Once again, the balance among these 3 aspects will depends on both theexisting Teams’ capabilities and the clarity of the expected deliverables.
Related risks:
reporting Complexity
additional costs due to unused reports
slow adoption
Decision-making process quality and speed
6. Built-In Retail Expertise
There are 2 ways to evaluate the built-in retail expertise. The first 1 is linked to the reporting: the more expert the system is, the more it will offer functionalities that fits the Teams’ business needs and will help them save time. The second one relates to the existence and quality of the supporting knowledge base, where users can refer to when they want to not only better understand the system, but also gain knowledge in understanding their role and their customers better.
Related risks:
require additional development costs
slow adoption
decreased Teams’ capabilities growth
7. Support & Training
Choose a system with a track record of providing excellent support and training, so you can get the help you need when you need it. The support & training should not only be about the technical aspect of the system, but also about the job Teams need to perform and their customers’ environment.
Related risks:
loss of faith in the system
ROI
8. Pricing
Consider the cost of the system, including any ongoing subscription fees, and ensure that it fits within your budget. The pricing aspects al relates to the system’s scalability: the evolution of costs depending on data volume, number of users, and any other variable parameters should be crustal clear and transparent.
Related risks:
costs
ROI
9. Security & Privacy
Data security is critical, so choose a system that has strong security measures in place to protect your data. Still, bear in mind that no system is 100% secure. Each additional % of security costs much more and necessarily impacts easiness to use and access.
Related risks:
data breach
system hack
10. Mobile Accessibility
Several teams will be using your Category Management system. Some of them are rather desk-bound while others are on the field. If you or yourteam need to access the category management system on the go, make sure the system has a mobile app or is mobile-optimized.
Related risks:
low usage from field-related teams
decreased optimization of internal collaboration
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Implementing category management in a retail setting involves several key steps. These steps need to be carefully planned and will help retailers to effectively analyze and organize their product & promotion offerings, optimize their operations and resources, and stay ahead of market trends. Here are five steps for implementing category management in a retail setting.
0. Reminder: What is Category Management
Category management is a strategic approach to managing and organizing products. At its core is the idea of segmenting products into distinct categories and then managing each category as its own business. This approach allows retailers to focus on the specific needs and characteristics of each product category, rather than treating all products as a single entity.
It involves analyzing data and market trends to determine the most effective way to select, distribute, promote, price, present and sell products within a particular category. The goal of category management is to increase sales and profitability by ensuring that the right products are in the right place at the right time, and by tailoring the shopping experience to meet the needs and preferences of the target customer.
1. Define and segment product categories
The first step in implementing category management is to define and segment product categories. This involves dividing products into distinct group of categories, then categories, sub-categories and segments, based on similarities in product characteristics, consumer needs and preferences, and market trends. This segmentation is also called Merchandise Hierarchy or Merchandise Structure.
Though it appears simple, this first step is critical for the success of the Category Management implementation. An improper or inaccurate segmentation means that Teams won’t be able to manage categories. Imagine – a common case actually – that Skin Care products are present both in the Beauty Category and in the Import Products Category. Not only do shoppers not necessarily care whether the product in locally manufacturer or imported, but the Team in charge of the Skin Care products will need to gather data from both categories to understand what the dynamics and performance of the Skin Care Products are.
2. Phase the Key Processes implementation
An effective management of the category requires a certain number of actions to be performed. Each of these actions reflect the Retail Mix:
Decide how the product assortment must evolve [Product]
Decide what products to promote, when and how [Promotion]
Decide how and where to display the products [Place]
Decide how to define the selling price of each item [Price]
Each of these actions are the results of thought processes and decisions, hence the name of process. And because each of these processes regulate the heart and lungs of the category, they are often called Core Processes.
Because each Core Process requires its own RACI1 approach and own tools – which implies building, training, coaching, and adjusting – it smart to phase the implementation2 of each process with selected group categories over a period of time.
3. Schedule the data analyses
To understand shopper behavior and identify market trends and patterns within each product category, a certain number of data analyses must be done. To save time and increase teams’ efficiency – which translates into faster decisions (agility), these analyses are best when pre-formatted and automated.
In a first step, sales data are the best sources. In an advanced stage, POS data can also be added to the analyses. At an expert level, additional data sets like customer surveys, and market research, to gain insights into consumer preferences and needs, must be added.
To successfully implement this step, and following the phasing defined in Step 2, 3 steps must be taken:
Train the teams on the metrics (and their reading) required to take decisions relative to the selected processes
Define the specific analyses relative to the relative to the selected process
Define precisely when each analysis must be done, and the corresponding decisions taken as defined in the company’s RACI
This information can be used to make informed decisions about which products to carry, how to price them, and how to present them in the store.
Before going to the next steps, we recommend ensuring that all categories representing 60% of the sales value have already been through the steps 2 and 3.
4. Develop category strategies
Based on the data and insights gained from the previous step, retailers can develop category-specific strategies to meet the needs of their customers and optimize sales and profitability. These strategies might include promotions and marketing campaigns, product assortment and placement, and pricing strategies.
These Strategies will support the key objective assigned to each category, which are summarized in the below table
At a more advanced stage, retailer can introduce the concept of category role. The role that is referred to corresponds to the shopping need the category must address. There are in general 4 commonly accepted roles, to which specific strategies can be assigned:
5. Collaborate with internal & external stakeholders
Effective category management also involves collaboration and communication with suppliers and other stakeholders.
Internally, the stakeholders are Operations (for execution), supply chain (for availability), Marketing (for communication), CRM (for assortment, promotions, and pricing). For the collaboration to be effective, a clear communication structure (i.e., contents, media, meetings, frequencies…) must be added to the RACI.
Externally, retailers should work with suppliers to ensure that they have access to the products and brands that consumers want, and that these products are of high quality and delivered on time. Such collaboration can be formalized through Join Business Plans, Category Captainship and Data Collaboration Programs.
Common Traps to Avoid
Below are the most common traps we have seen happening during a Category Management approach implementation
Inadequate Merchandise Hierarchy
Unprecise Core Processes
Lack of decisions criteria for each Action
Insufficient internal communication
Lengthy and administrative decision-making process
Inadequate Retail BI Tools
Lack of Training
Too short Phasing
Weak involvement of stakeholders
Fear of Failure
Beyond the technique and processes, Category Management is above all a mindset. This mindset is built around 4 pillars:
Customers are the final decisions makers, the judges, and the jury of all decisions
Execution is as important as strategy
The truth is in numbers. Planned quantitative monitoring and adjustments are critical
Category management is a collective work
By following these five steps, retailers can effectively implement category management, and improve their sales and profitability. Teams buy-in will be as strong as the phasing is timely and as the priorities will allow the capture of low hanging fruits.
Appendix: Category Management Implementation Schedule – Example
Brand analysis is the process of studying a brand and its performance in the market. It is an important tool for businesses to use to understand the strengths and weaknesses of their brand and identify opportunities for improvement. There are several reasons why businesses may need to conduct a brand analysis:
To understand the brand’s market position: By analyzing the brand’s market share, customer base, and competitors, businesses can get a better understanding of their position in the market.
To identify opportunities for growth: Brand analysis can help businesses identify areas for growth and development, such as new markets or product categories.
To inform strategic decision-making: By understanding the brand’s strengths and weaknesses, businesses can make more informed decisions about their marketing, sales, and product development strategies.
To measure brand performance: Brand analysis can help businesses track the performance of their brand over time and identify areas for improvement.
To improve customer satisfaction: By understanding how customers perceive the brand, businesses can identify opportunities to improve the customer experience and increase satisfaction.
Overall, brand analysis is an important tool for businesses to use to understand their brand and identify opportunities for growth and improvement.
1. Brand Health Check
Identify the Numeric KPI to see all perspectives of your brands, then build a scorecard dashboard that you can monitor every month. Brand Scorecard varies depending on the industry and business goals, but some common KPIs for a brand scorecard include:
Financial: Revenue, Profit and Loss
Competition: Market Share, Ranking
Shopper’s Basket: Number of Baskets, Unit per Basket, Penetration, Wallet Share
Shoppers: Shopping Frequency, Shopper Penetration, New Shoppers
Satisfaction: Number of the repeat purchase shoppers
2. Market analysis
The most popular measurement is the growth-share matrix, also known as the Boston Consulting Group (BCG) matrix, which assesses a company’s product portfolio and determines which product or segment should receive the most investment.
The grid is based on the Brand market growth rate and Brand market share and is divided into four quadrants. Brand strategy in each quadrant should be different.
Star: Expand
Question Mark: Invest or Divest
Cash Cow: Harvest
Dog: Divest
The growth-share matrix can help a company prioritize its investment decisions and allocate resources effectively. However, it has some limitations, such as its reliance on market share as a sole measure of a product’s success and its failure to consider other factors that may affect its performance.
Customer analysis: Study the brand’s customer base to understand their demographics, preferences, and behaviors.
3. Opportunity Lost Analysis
Quantifying the number of expected sales would help us know how much we should invest.
There are 2 possible ways.
3.1 Growth opportunity loss
It refers to potential business growth that was not realized due to missed opportunities or poor decision-making. It can be caused by various factors, such as a lack of resources, inadequate planning, or a failure to seize opportunities as they arise.
The calculation is
My Brands Sales Growth = A
My Brand Sales Last Year = B
My Benchmarked Sales Growth = C
Formula = (A-C) x B
3.2 Fair Share Gap
The fair share gap is the difference between a company’s actual market share and its potential market share, also known as its “fair share.” It is typically used to measure a company’s performance in a specific market.
To calculate the fair share gap, you can use the following formula:
Fair share gap = Actual market share Potential market share Potential Market Share can be, for example
-Your company’s market share combining all brands
-Your brand market share on average in many markets
-Your targeted competitor’s market share
4. Competitors Analysis
Competitor analysis studies your brand’s competitors to understand their strengths, weaknesses, and strategies. It is an essential tool for businesses to stay competitive in their market and make informed strategic decisions.
To conduct a competitor analysis, you can follow these steps:
Identify your competitors: Who are the main competitors in your market? Next, make a list of all the companies that offer similar products or services.
Benchmark your brands vs them in terms of – Number of SKUs, – Assortment Variety for different shopper group – Pricing – Promotion: Above the line and below the line
Evaluate their strengths and weaknesses: Identify your competitors’ key strengths and weaknesses, By conducting a competitor analysis, you can better understand your competitors and their strategies, which can help inform your own business decisions.
5. Brand perception analysis
The process of studying how consumers perceive a brand and its products or services. It is to understand their brand’s strengths and weaknesses and identify improvement opportunities.”
There are several ways to conduct a brand perception analysis, including:
Surveys are a common method for collecting data on brand perception. You can use online tools or hire a research firm to conduct a survey and gather data on consumer attitudes and perceptions of the brand.
Focus groups involve gathering a small, diverse group of consumers and facilitating a discussion about the brand. This can provide valuable insights into how consumers perceive the brand and its products or services.
Social media analysis: Social media platforms can be a rich source of data on brand perception. By analyzing social media conversations and sentiments, you can understand how consumers feel about the brand.
Customer feedback: Customer feedback, such as online reviews or comments on social media, can provide valuable insights into how consumers perceive the brand.
Brand tracking studies: These are long-term studies that track changes in brand perception over time. They can be useful for identifying trends and patterns in consumer attitudes towards the brand.
Common Traps to Avoid
Below are the most common traps we have seen happening during a Category Management approach implementation
Relying too heavily on subjective opinions
Failing to consider the competitive landscape
Ignoring the customer perspective:
Failing to update the analysis regularly
Success Factors
What company could help brand manager to successfully implement brand review process.
Solidify RACI (response, account, consult and inform) of each brand review step
Schedule the timeframe clearly.
Action Driven Data Analytic Solution, so that team can build the action plan efficiently.
Arrange the training regular for newcomers and refresher training for the existing member.
Read More about Brand Review and Implementation at Retailer stores
From the very beginning, the products a Retailer offers to its customers are classified based on its Merchandise hierarchy, also called structure or product hierarchy. The Merchandise hierarchy enables Retailers to organize their products into different categories and sub-levels, making it easier for
their Customers to find the products they are looking for while shopping in-store or online. For most Retailers, Products are displayed according to the Merchandise Hierarchy they belong to.
their Operation Team to display products in a logical pattern and quickly identify where a new product should be displayed.
their Analysis, easily identify which Division, Department, Category, or Sub-Category is performing or not based on Sales, Margin, and Inventory.
Ideally, retailers enjoy having several segmentation levels, this creating a granularity that supports finer analyses and better decisions.
Challenge
The lack of granularity was preventing Merchandisers and Buyers to understand customers’ preferences an take the relevant category decisions. It translated in decreased cashflow, and non-optimized sales opportunities.
Due to its ERP limitations to only 3 levels of Merchandise Hierarchy, our Client – an Hyper and Supermarket Chain with a national presence with above 70 stores – and its Team struggled in their product segmentation. Because they had to gather several different types of products in similar groups, they were not able to detect:
Which Sub-Category was the main sales or margin contributor of the Category
Which Sub-category was having too many
Which Sub-category was performing well among other Sub-Categories within the same Category
If the space allocated was sufficient or not to display the number of products belonging to the Category
For example, in the Electronics Division, the next sub-level of Merchandise Hierarchy in our Client Merchandise Hierarchy was TV, Sounds, Computers & IT, Appliances, and Small Appliances.
When drilling down into Small Appliances, the next sub-level was Food preparation, then all products belonging to Food Preparation were attached to it.
Buyers and Category managers were naturally struggling managing the 600 skus of the Food Preparation group, not being able to know sales and margin contribution of, for example, Rice Cooker, Blender, Food Processor, Juicer……
Action
To bypass the limitations of the ERP, a virtual merchandise hierarchy was built in our cloud-based retail merchandising solution, supported by automated mapping of each skus.
Putting the Client’s ERP on the side for a moment,
the 1st step was for our Client’s Merchandise Team to build their ideal Merchandise Hierarchy. It was a practical and detailed approach of What Good Looks Like. The exercise enabled the Team to create 1,927 sub-categories, whereas their ERP was limited to 492.
The 2nd step was to map each existing product from the existing ERP Merchandise Hierarchy with the new one they just built. Using key words in products description, the 80,000 Skus of their current assortment were successfully mapped.
The 3rd step was to automate the mapping from the ERP to our Retail Merchandising solution and ensure this mapping would be flawless.
The 4th step focused on defining the business rules required to map every new product coming into the assortment, from the ERP to the Retail Merchandising solution.
In just 3 months, our client’s Teams was able to reach a level of granularity that was not possible in the past. And they started to immediately see where the improvement levers were.
For instance, and back to our Food Preparation Category example, the Category Manager discovered that its Top Sub-Category was Kettle with 40% of the Share of Sales for 29% of Share of Assortment and only 25% of Share of Space but the Sub-Category Sales growth was at 2.2% when Electronics was growing by 5.1%. Based on Kettle performances the Team then decided to allocate more space and redefined the number of Products for the Kettle Sub-Category.
In opposition to Kettle Sub-Category, Toaster Sub-Category had a Share of Sales of 2% with a Share of Assortment of 7% and a Share of Space of 10% when the Sales Growth was negative. Then the Team decided to reduce the number of Products and space allocated for the Toaster Sub-Category.
The Merchandise Team reviewed their entire Assortment allocation based on those principles:
Share of Sales, Share of Assortment, Share of Space to improve their Assortment effectiveness. They increased or maintained the Number of SKUs for Sub-Category having potential growth but having big gap between their Share of Assortment, Share of Sales, and Share of Space, and they reduced the Number of SKUs for Sub-Categories over displayed and having too many SKUs.
Results
In addition to massive savings in ERP upgrades, The assortment was optimized, with direct and measurable impacts on sales, profitability and cashflow.
After 3 Months for Food Preparation
Sales Growth is + 8.9% and Kettle Sub-Category is having a 17.2% Sales Growth
Margin Value improved by 12.4%
Total Assortment for Food Preparation reduced by 29.6%
Stock Days reduced by 14 Days (12.8%)
What does this show?
Having the possibility to segment and drill down till Sub-Category or segment allows Category Manager to have a more granular vision of its Category and to take actions and decisions based on performances.
Easily and quickly identify which are the Sub-categories underperforming.
Manage Share of Space Vs Share of Sales Vs Share of Assortment
Assign a fixed Number of SKUs by Sub-Category with a basic principle (One-Product-In, One-Product-Out)
On our side, we were of course happy to see that our Tool and Expertise are helping create the right value for our client and help strengthen their Assortment efficiency.
What does it demonstrate?
Effective assortment management requires a certain level of granularity. Investing time in building this granularity deliver almost immediate results for all stakeholders:
Easily and quickly identify which are the Sub-categories underperforming.
Manage Share of Space Vs Share of Sales Vs Share of Assortment
Assign a fixed Number of SKUs by Sub-Category with a basic principle (One-Product-In, One-Product-Out)
The objective of Category Management is to ensure each Category’s performance is maximized to its full potential. Ideally, each category is assigned a specific role. Each role will determine how the range, pricing, distribution, display and promotions will be managed through different strategies and tactics. These strategies and tactics start from purchasing and supplier management to Visual Display and Sales performance management.
In that view, category management is a working approach supporting a business model (a category must contribute to X% of sales, Y% of margin and Z% of cash flow)
In this approach, each Category is considered as a stand-alone business unit managed by a Category Manager. The category manager will pay specific attention to ensure that each product performances is maximized.
Challenge
Our Client’s was aware of the importance of Category Management and how it was critical to implement it. Their struggle was on the execution side. How to make this new working organization work, make people’s life easier and deliver results. Our role in this assignment was to help the team kick it off, in real life.
Action
Obviously, Category Manager’s Team can’t implement Category Management process for all their Categories at once. Then, they selected their Top Categories according to their sales contribution and the least performing Categories. When we follow the book, the category management process includes 7 steps. As our client was at the early stage of implementation, there was no benefit in trying to implement the complete process at once. We preferred a step-by-step approach, with easy wins. In that view, we agreed with the Team to focus on 2 main steps, plan them and define what had to be done.
STEP 1
Ensure all is counted and accounted for: Category Assessment
The first step we agreed to take and later planned recurringly is the Category Assessment. The objective of the assessment is to be able to decide what to do next. Beyond the sales assessment, which the Team was already familiar with, we agreed to add dimensions to the assessment. A Category Management Wheel (see illustration) was designed to help align decisions and conditions.
Sales Quantities: the team defined an average daily sales quantity threshold under which each concerned item was to be challenged: selling price, availability, service level, duplication level, promotion intensity and distribution. Sub-Category effectiveness: the team defined an effectiveness threshold under which each sub-category assortment was to be challenged Brand Effectiveness: the team defined an effectiveness threshold under which each sub-category assortment was to be challenged
For each threshold, a set of checking points were set up in the system, along with defined decisions and actions.
STEP 2
Focus on Action: Tactics
Traffic and Destination were the main roles of the top categories selected by the Team. Depending on the results of the Assessment, we set up a simple table of objectives and corrective action (tactics) to be implemented for each category type, for each sales Driver. These were used as a guideline, with only one rule: Action MUST be taken. An example of this table is illustrated below.
RESULTS
Beyond the progressive improvements of the categories’ key indicators, the biggest success was by far the buy-in from the Teams. They became able to better understand the reasons of the performance, as well as deciding rationally what actions to take. And for each action taken, they were also able to read its impact on their system. It sparked a stronger feeling of ownership of the category and its performance.
AUTHOR’S NOTES
A Retailer can easily manage hundreds of Categories and Subcategories within its Merchandise Hierarchy. It is a real challenge for Category Managers. Therefore, prioritizing Categories is a key success of Category Management.
If Implementing Category Management is not an alternative anymore, its execution must be progressive, documented and coached. Most teams are happy to accept pressure as long as they are effectively supported.
Rome was not built in a day. Ensure that the time allocated to the category management approach implementation matches with the Team’s capabilities.
On our side, we were of course happy to see that our Category Management Experience and our Ariane solution for retailers are helping create the right value for our client and help strengthen their Category Management.
