DEFINE, DEVELOP, IMPLEMENT

MARK TOSH

Leading-edge practitioners today already are taking a multipronged approach to creating product assortments that better meet the needs of customers and enhance overall category performance.

But even strong proponents of Efficient Consumer Response, which identifies efficient assortment as a key industry objective, note that more work needs to be done to reap the full benefits of category management.

The process begins with defining the category and continues through developing and implementing tactical management strategies in areas such as pricing, shelving and promotions.

In the future, companies at the forefront of category management will begin homing in on customized category data involving small groups of products and finding better ways to maximize promotional effectiveness.

"Category management is widespread today, but in a variety of different degrees," said John Clutts, director of ECR at Giant Food, Landover, Md. "But category management as being practiced with a true consumer-focus orientation is not yet at the level it should be."

Clutts is co-chairman of the process-improvement group focusing on category management, under the direction of the Joint Industry ECR Operating Committee.

True category management involves much more than just changing a business card, writing a new business plan or doing a shelf planogram, he said. It requires developing a complete business plan on a certain segment of products that meet a similar consumer need, he said. "You also need to have a corporate commitment, you need to have good information available and you need to have the tools and systems that help you mesh all the data," Clutts said. "It's a very difficult thing to do if your only tool is a spreadsheet."

One of the advantages of practicing category management is that it requires a company to think more broadly about categories and groups of products, said Donald Dufek, former senior vice president at Kroger Co., Cincinnati, and former co-chairman of the ECR Best Practices Operating Committee and now an adviser to the ECR Operating Committee.

"I think as a total industry we have to come around to the customers' side of the fence and look at groups of products the way customers look at them," Dufek said. "We have to stop looking at things like individual items, individual products and individual [stockkeeping units]."

In addition, distributors need to make sure their business practices are aimed at making money by selling merchandise and offering "solutions" to the customers, not on creating profits from the buy side of the business, he stressed.

"Changing the way product is sourced, the way it's manufactured, the way it's transported, the way it's bought, the way it's sold and the way it's ultimately merchandised to the consumer is the essence of what the [ECR committees] are out there talking about." One of the goals of the category management process-improvement group is to begin working on customizing market data, an area where both manufacturers and distributors now invest "a boatload of money," Clutts said. Because companies increasingly want to have customized category data, the group is hoping to help simplify category definitions and standardize "discrete" groupings of products.

These groups could serve as "building blocks," Clutts said, and provide the means by which category managers could put any combination of product groups together to come up with a custom definition. Clutts emphasized the objective is not to create standardized category definitions, but rather standardization for small product groups to make it easier to assemble category data. For example, it might include all mayonnaise-based, low-fat salad dressings in glass jars that could be substituted for one another.

This "building block" could then be combined with other blocks to build a category, which would be the same for every company using the building-block system. "This approach would reduce costs for third-party data providers in terms of crunching all the data, and save costs for the people who are buying the information," Clutts said.

Another area in which the process-improvement group hopes to make headway is in creating a standard measure for evaluating the impact of promotions, which typically varies from company to company.

"We are not about to address what's the right way to present a deal or the right way to structure a deal or anything like that," Clutts said. "But what we do want to address is the variety of different ways to measure the effectiveness of a promotion."

As new technological tools and tactics become available -- such as data warehousing and decision-support systems -- the roadblocks to category management should become easier to overcome. There's also an estimated $4 billion in industry savings to be derived from efficient assortment, according to the category management process-improvement group's 1996 report on assortment.

Still, Clutts estimated that only about 10% to 20% of manufacturers have embraced category management to the fullest extent.

"I would say the lion's share of the companies are working hard toward, it but aren't totally there yet," he added. "They've got the right intention and have focused on some core competencies, like assortment, rather than consumer insights."

At the other end of the scale, there's a third tier of companies that "just don't get it and still don't see it as a need," Clutts said. "That's the smallest group."

Clutts believes there are many retailers very interested in doing category management work, but have had a problem finding capable manufacturer partners.

"To a degree, the retailer group is eclipsing the distributor group in terms of interest and capability," he added.

"I don't know of any large retailer who hasn't embraced category management in one way or another in our category," said Jim Bowen, director of category management at Coca-Cola USA, Atlanta. Bowen also is a member of the ECR Operating Committee.

Bowen believes efficient assortment and category management tactics are especially important in the soft-drink category, because there are so many SKUs and the volume is so large.

Coke has been involved with category management efforts since the beginning of ECR. The benefits have been "very substantial" for the supplier, as well as its retailer and bottler partners, and for the category as a whole, Bowen said.

"'We think of it here as category marketing," he noted. "We're trying to partner with people to create a vision of what's beyond category management."

Not all category management efforts require a partner, but in major categories like pet food or soft drinks it's almost a necessity, Clutts acknowledged.

"No retailer in the United States is going to have the insight, the product knowledge or the access to consumer information like a manufacturer will," he said. "We're just not into category-specific businesses like manufacturers are. What we bring to the table is expertise as a retailer and as the link to the consumer."

Among the process-improvement group's accomplishments, Clutts noted that three cases studies have been published and are available to interested companies. They focus on category management for variable-weight perishables, across department boundaries and for small manufacturers.

The group also produced a process report outlining, step by step, how to use consumer, financial and market information to help derive the right assortment.