MANAGING CATEGORY MANAGEMENT

JOHN KAROLEFSKI

CHICAGO -- To practice category management, it's back to the basics.

Brand marketers must take the time to look at categories through the eyes of the retailer. What are his goals? Who is the competition? Are brand and category objectives compatible? More importantly, they must examine their own operations to make changes for this new way of doing business. For example, how can sales and marketing work together for a common goal? Are technology-based tools available? "The development of the trade marketing group is probably the biggest change we have had," says Hugh Mitchell, associate director of customer support at Schering-Plough Healthcare Products, Memphis, Tenn.

Paul Owens, customer category management leader at Scott Paper Co., Philadelphia, says, "Our approach has been changed to a holistic approach of addressing the total category."

Owens and Mitchell were among a panel of executives who explained the

impact of category management execution. Other manufacturers included Bob Monroe, director of the key account group at Coors Brewing Co., Golden, Colo., and Ralph Abrams, vice president of sales at Lea & Perrins, Fair Lawn, N.J. They were joined by Ted Gladson, president of Gladson & Associates, Lisle, Ill., a space management service center.

Brand Marketing moderated this panel at a category management conference here in June that was sponsored by The Marketing Institute, a division of the Institute for International Research, New York. "We've encouraged our sales and marketing departments to work together," says Abrams of Lea & Perrins. "We can analyze how profitable we are for our customers, which is part of the in-store marketing plan which encourages marketing and sales to work together on programs." Developing fact-based tools is critical to the success of category management, according to the panelists. "We brought a fact-based approach to selling that analyzes the category for the buyer," explains Monroe of Coors. Says Mitchell of Schering-Plough: "It is very easy to underachieve your category management objectives if you are not able to do any kind of measurements such as return on asset, return on inventory investment. All of those pieces get to the heart of where I am putting promotional dollars and focusing my energies." According to Owens of Scott Paper, the retailer remains the critical component of the manufacturer-retailer-consumer relationship. Brand marketers must take the time to find out what the retailer's strategies and goals are. "Our work and analysis is useless unless we know what the retailer wants to be. Does he want to be the low-price leader or does he see the category as a profit generator?" he says. "This is a fundamentally different way of doing business." Here's more of what the executives had to say:

Hugh Mitchell

associate director, customer support

Schering-Plough Healthcare Products

Memphis, Tenn. The development of the trade marketing group is probably the biggest change we have had in the last two years. They have been moved in as a complement to our sales force by focusing on key accounts, measuring results of promotions -- what did work, what didn't work; providing analysis; tracking promotional monies -- where did we put them, where did we not put them, which account utilized them best, which one off-invoiced, billed back. One of the programs we became involved in early on was Quick Response with Kmart. We learned that if you are not sophisticated enough to carry off those types of programs, getting involved in category management can be an even bigger uphill battle. You have to be able to understand consumer motivation, raw data and be involved in discussions and surveys. Future areas that we see as opportunities include an increase in technology-based tools. It is very easy to underachieve your category management objectives if you are not able to do any kind of measurements, such as return on asset, return on inventory investment. All of those pieces get into the heart of where I am putting promotional dollars and focusing my energies. The second biggest issue is account-based and account-focused trade activities. These are programs specific to a grocer or region. We are trying to make sun care become a 365-day-a-year product. We don't want it to only sell in the summer. Especially in the Northeast, we want people to take sun care products on vacations in January through March as well as July through September. That takes a tremendous amount of effort and data analysis. We are always open for new ideas and new concepts. A lot are driven by bigger retailers and merchandisers. Wal-Mart is a leader. It is hard when you have 25,000 accounts and something works for Wal-Mart. You are left with the question: How will this work for the other 24,999 accounts?

Ralph Abrams

VP of sales

Lea & Perrins Fair Lawn, N.J.

We made two strategic moves. We do not have a trade marketing department per se. What we have done is encouraged our sales and marketing departments to work together. The sales and marketing departments are both on the same bonus plan now. We do not reward on volume sold; we reward on profits sold. We also do an analysis by region on the profitability of our products with customers. Therefore we can also analyze how profitable we are for our customers, which is part of the in-store marketing plan which encourages marketing and sales to work together on programs. Another thing we have done that is different from what we used to do is promote a secondary distribution system. It costs a lot of money to spot an item for only some clusters of stores. But we can get into the specific store, still help the profit of the category in those specific stores and still meet the consumers' needs. We didn't do that until about two years ago. Our goal is to move to a strategic partnership level of account management with every customer. That is the third level in the account management process and is truly category management. The second level -- where we are with some of our customers -- is more how to grow your own business. We have developed a plan so key account managers can (assist the move) to the next level.

Paul Owens

customer category management leader

Scott Paper Co. Philadelphia

Our approach has been changed to a holistic approach of addressing the total category, and then bringing it to implementation. We offer conceptual solutions that can assist the overall category. We are also taking our people from being sales-focused to what can help them drive their profitability to where they are accountable to the total profit and loss. What might not be good for merchandising may be good for the total system. If I can take out inventory on a major promotion by not going to the warehouse and get it directly to the stores, the merchandising manager really doesn't care about that. The warehouse manager does. The engagement with customers is no longer a seller/buyer. It is a business manager dealing with all the different disciplines with that customer. It is all driven by fact-based information, not just, "This feels good to do." The retailer, manufacturer/supplier and consumer all intersect in some relationship in demand-side services. The consumer is the ultimate focus for both retailers and suppliers. It all starts with what the consumer is about, what are his wants and needs. The retailer is also a critical component. What does he want to be? What is his mission? What are his objectives and strategies? Our work and analysis is useless unless we know what the retailer wants to be. Does he want to be the low-price leader or does he see the category as a profit generator? This is a fundamentally different way of doing business.

Robert Monroe

director, key account group

Coors Brewing Co. Golden, Colo.

The key accounts group has undergone a dramatic shift in redefining the corporate culture. We flattened our organization. That has enabled us to be very aggressive in pricing, promotional response and shelf marketing. We have taken a tiered approach. Category management analysis is still generally done at a singular level with retailers. As that percolates down through their system, we also have key account people on the street able to deal at the buyer level. The way we try to move this through is we brought a fact-based approach to selling that analyzes the category for the buyer. Also from the standpoint of objectivity, we present recommendations against the entire category rather than just going in on a day-to-day basis and hammering away for promotion and pricing advantage. So we have a two-tiered approach to how we impact the retailer and the item selection. To lay a solid foundation, we have to develop an objective posture together with a commitment to stick to the process and make the necessary changes, even in the face of what may seem unpleasant or overwhelming. Generate a category management template containing all of the elements. Lay it on top of your existing organization. Then you have to be painfully honest about what is inconsistent. What needs to be done with your organization to become a full-time business partner?

Ted Gladson

president

Gladson & Associates Lisle, Ill.

Space management has evolved into category management. Think of Efficient Consumer Response like the Pentagon. Category management is one floor. Space management is one room. Those are the linchpins of the whole ECR equation. Right now everyone is doing corporate planograms. They look at national data and maybe point-of-sale data from the retailer. The market is moving rapidly to the next generation -- cluster planograms. The focus is on putting the product where the consumers really want it. I was involved in a project for a chain that acquired drug stores. When the chain was presented with a line of vitamins that was carried in the acquired drug stores, the buyer said, "Prove that I should carry it." That started them on cluster planogramming.

Retailers are looking for vendors who can do clustering. The next step, which seems like eons away, is store-specific, or micro, marketing. That is where you do 2,000 planograms for the 2,000-unit chain. That cannot be done in a cost-effective manner. First we have to learn how to cluster. I see store-specific at least five years away.