Category management is a retailing & purchasing concept in which a range of products are purchased by business organizations or sold by retailers is differentiated to discrete groups of similar products as per the usage characteristics. It is a very systematic approach to manage a product category as a particular SBU.
Since every category is run like an SBU, each one of them is run as a small mini business which has its own profitability targets & strategies. An introduction of category management in business tends to alter relations with supplier & retailer by ensuring collaboration with respect to data sharing & joint business building.
There is a focus on supplier negotiations which in turn affects the turnover of the category management and not just sticking to sales of individual products. Suppliers are expected, indeed in many cases mandated, to only suggest new product introductions, it is expected to have a beneficial effect on the turnover or profit of the total category and be beneficial to the shoppers of that category.
“Category management is a process which involves managing of product categories as a particular business units and customizing them to satisfy customer needs.”
One key reason and rationale behind the category management is add value to suppliers businesses rather than just ensuring supplier own needs.
For example, in a category containing brands A and B, the situation could arise such that every time brand A promoted its products, the sales of brand B would go down by the amount that brand A would increase, resulting in no net gain for the retailer.
Also negotiations can milk only a finite amount of profit and hence category management helps to increase the total level of sales in that particular category.
Also with the introduction of category management, supplier’s expertise could be milked and a considerable amount of load in developing a category could be delegated to them.
The Category Management steps (8 Steps)
- Define Category
- Define role of category
- Assessing current performance
- Setting objectives & targets for category
- Devising an overall strategy
- Devising specific tasks
- Review of the process
The 8-step process, in spite of being comprehensive and thorough has often been criticized for being too unwieldy and time-consuming in today’s fast-moving sales environment. The current industry trend for supplier companies is to use the standard process as a basis to develop their own more streamlined processes, tailored to their own particular products.