It and its component parts go by many names: category management, fact-based selling, shelf management, micro-marketing, schematic development, space management, customer management.
“What is category management? That’s kind of like asking, ‘What is religion?'” said Joy Lee, marketing and merchandising manager of the Virginia Department of Alcoholic Beverage Control (VDABC).
Simply speaking, category management is when a retail operation gathers information pertaining to a type, or category, of product, such as, for example, vodka, and uses that information to make business decisions. Category management, or as it is often called, fact-based selling, can affect a retailer’s decisions about what products to sell, how many and which brands of those products to carry, how many of each brand to keep in stock, where to put those products in the store and how to arrange them on the shelf.
The VDABC, which, in 2002, won a technology award from CIO Magazine for its point-of-sale and information systems, might, for example, use its store information to determine how many facings each brand in a category should have in a particular store. “We are looking to maximize profits for the State of Virginia without having a prejudicial impact on any [supplier’s] sales,” explained Lee. “We do not recruit new drinkers. That is against our moral code. But if you were in the store, looking to buy a product, we’d rather have you buy a more expensive one. But if you want the inexpensive one, we have that, too.”
The New Hampshire State Liquor Commission (NHSLC) works with a broker, which represents a major supplier, on its category management. “We work with them to analyze the data — which can be very complex — needed to maintain our category management,” explained John Bunnell, administrator of marketing and sales. For the NHSLC, category management “is a form of presentation,” he said. “How many facings of each brand do we need? How much does each store need to have in stock?”
The broker, Horizon Beverage, periodically reviews each of the NHSLC’s stores. “They review the sales and the depletions, what was put on sale,” said Bunnell. “They know the size and layout of each store. And they can tell us the optimum number of facings to have of each brand depending on the number of feet of shelving space.”
The Washington State Liquor Control Board launched a new shelf management program in all of its 157 state stores this past summer. The shelf resets — using the latest sales data and demographic information — are expected to result in a significant increase in retail dollar sales.
According to Madeline Carriger, the shelf-management specialist at Horizon that oversees the broker’s work for the NHSLC, the idea behind the shelf-management part of category management is to make it easier for the consumer to pick the higher-priced product and slightly less easy to get the lower-priced one, thus increasing the retail operation’s profits. “My job is to convince you to buy the $24.99 brand, not the $10.99 one,” she said.
But like other control state agencies, the NHSLC does not use category management to determine which brands the stores will carry and which they will not. “This has nothing to do with listing and de-listing,” said Bunnell. “That’s a whole different issue.”
Since the early 1980s, the NHSLC has run a program, now called the “Hot Brands Savings Program,” that is also based on category management philosophies. The NHSLC periodically identifies the top-selling spirit brands in the eastern part of the United States and features them in all its stores at competitive prices. “This is absolutely category management,” said Bunnell. According to the NABCA’s email newsletter, E-Control Link, some of the latest sales information on these brands, from May through October of 2003, show sales increases between 10% to 28%, compared to the same period from the year before.
“Category management is managing your business with the maximum efficiency,” said Michelle Branch O’Fogg, director of category management and consumer marketing, at Capital Wine & Spirit a division of the Charmer Sunbelt Group, a broker in Pennsylvania, which has worked closely with the Pennsylvania Liquor Control Board (PLCB) on category management projects.
According to Jim Short, the PLCB’s director of marketing, the PLCB will be looking at product assortment, deciding which stores need to carry which products and how much of them. “Our Cluster A stores [which are stores with an upscale consumer base] might not need 20 white zinfandels. They might need only 10. Then, we can expand the selection of, say, sauvignon blancs, from one to two facings of a particular brand to three or four,” he explained. “Even when you have actually reduced the selection, the consumer perception is often that you’ve increased it, because you have more of what the consumer wants.”
Traditionally, retail operations, including the state stores run by government agencies in the control states, have partnered with the manufacturers of their products or the manufacturer’s representatives, such as brokers, to gather the information needed for category management.
“Category management is a process in which manufacturers and retailers combine efforts and information to determine the changes needed to a category for maximum returns to the retailer while providing the most efficient assortment for the consumer. The process includes analysis of assortment based on sales and dollars, fair share of shelf to dollar returns, shelf inventory, SKU placement, consumer loyalty, pricing analysis as well as promotional planning for a category,” explained Krissy DeGuisto, category management manager for Allied Domecq Spirits, North America. “The end result would provide a retailer with an easily shopped, consumer-friendly category that is organized with a methodology that a consumer could follow, yet provide price, flavor [and] size options for a consumer to maximize category purchases.”
And the facts available these days are myriad.
Of course, the starting point for any retail operation looking at a category would be its own sales history for that category. But that’s just the sales taking place now.
Category management also looks at demographic information about consumers in the store’s area and, where applicable, the sales history of the category in nearby markets and competing stores. This is traditionally where manufacturers, or suppliers, come in. They are often able to provide a control state agency with such information, including general consumer data purchased from marketing information companies, such as ACNielsen and Spectra. This information can help determine what the potential sales of a category could be.
“Generally speaking, simply, what you are looking to do is understand consumer purchasing. How do they buy the product? Why? From where? When? What is their trip frequency? What are the other items in their shopping basket?” said Sam Anderson, a strategic account leader at Brown-Forman.
And the continuing enhancement of computer technology has enabled suppliers and retailers to collect and analyze such information. “Category management is not anything new,” said Anderson, “but technology has enabled us to understand the consumer a little more. When scan data was first collected, we had it, but we didn’t know what to do with it. Now, using technology, we can mine through it and really understand the consumer. The biggest change in category management, for both retailers and manufacturers, has been the technology.”
Marketing information companies can, for example, provide the results of consumer surveys and also household panel data, when consumer participants record information about every purchase they make.
These scenes are from one of Virginia’s newest state stores: Store #205 on John Rolfe Parkway in Richmond. The Virginia Department of Alcoholic Beverage Control uses its award-winning p-o-s and information systems to shape its category management decisions.
When it comes to category management, “an increase in business is the least of expectations,” said Allied Domecq’s DeGuisto. “Implementation of a category management plan will do the following: remove items not selling well in the category, increasing shelf space for exceptionally moving items that may be losing sales to out-of-stocks. It will bring in hot items in the market not currently being sold by the retailer. And, finally, it will organize the shelf to place items on the best shelves for their positioning to maximize sales. When done properly, accurately and without manufacturer bias, category management is simply the right product at the right price at the right location.”