Category Management in the Online World

“Category management is a process that involves managing product categories as business units and customizing them [on a store by store basis] to satisfy customer needs.” (Nielsen – 1992). When Nielsen penned this definition in 1992 they were ahead of the capabilities of the time. Store-by-store customization was beyond the organizational and supply chain capabilities of both manufacturers and retailers. As with many other retail challenges, the internet is enabling a transformation in category management including greater levels of store level customization, let’s examine how.

Bob Wong, Director of Category Leadership at Del Monte Foods identifies mistakes category leaders make in brick and mortar stores. Those mistakes are listed below with connections drawn to challenges in the online world.

• Forgetting to put things in context. One example is forgetting to account for adjacent categories in the aisle.
  - Online stores are laid out in categories however, moving from one category to another is only a matter of a mouse click and online stores tend to place products in multiple often disparate categories. For example, a disinfectant wipe will listed in health and personal care, electronics, office products and baby care. This makes locating a product easier but more confusing in terms of branding and applications. Online category management requires mapping out a logical and rational product placement schema so customers are clear about a product’s promise and applications. For example, will a consumer purchase a disinfectant wipe to clean their bathroom if it is listed under baby care?
• Not putting yourself in the other person’s shoes. Several examples include looking at things through “our” lens; failing to anticipate their concerns; writing the script according to “our” logic, not theirs. Tip: Find out what’s important to your customer.
  - Product reviews are the ligua franca of customer insights, logic and concerns. Reviews not only inform category management but they also inform other customers. In the online world, customer reviews is a central component of category management.
• Leaving out the “so what?” Data and facts are not ‘insights.” Tip: Look for a triple win for the retailer, manufacturer and shopper.
  - Creating a win-win-win is as important in the online world as the offline world. However, in the online world category management becomes increasingly complicated with additional factors such as thousands of small “affiliate” retailers, proper product listings (planogramming), and delivery as part of customer satisfaction. These additional factors need to be analyzed and included in category management practices.
• Overlooking what you already have. For example, forgetting to leverage data you already have. Tip: maximize existing resources.
  - Online retailing has created more, larger, and more diverse data sources. This has become a challenge for category management that was barely staying ahead of store data. Now category managers have to understand an entirely new path to purchase which includes social media sites and how customers move through online stores. Also, it does not work to simply transfer customer patterns from brick and mortar to e-commerce- it just does not transfer. Good category management requires developing unique insights that come from mining and linking disparate data sources.
• Not recommending practical solutions. Don’t ask: How long before I see a return? Is it worth it? Tip: Do a reality check; for example, how would it be implemented?
  - Implementing and measuring online category management is in its infancy. Methods, measurements, placements, messaging is all being developed and refined on a daily basis. Many manufactures are still struggling to get it correct offline after many years of trial and effort. The online world is so fluid and flexible, implementing effective category management will take innovation and creativity as well as new and yet undefined measurements of success.
• Not getting everyone on the same page. We live in a world of silos. Marketing and sales don’t all agree. Tip: Help others understand how category management can help align objectives and goals.
  - Although the ultimate goal of online and offline category management remains the same, online category management requires new perspectives, new definitions, and new success metrics. This requires aligning marketing and sales around online category management strategies which may be foreign to both marketing and sales organizations. This is both a challenge and an opportunity- challenging because it is new and an opportunity because there is a blank piece of paper to work off of.
• Forgetting the shopper’s perspective. We need to see the shopper’s perspective. Understand the pain points and expectations. Tip: Invest in shopper understanding via loyalty data.
  -Once again, the all important shopper’s perspective is unveiled online through reviews, Facebook Follows/Likes, Google+1, etc. Online category management needs to incorporate these channels into traditional channel management activities as well as Shopper Insights.

A 2011 Category Leadership Study by Kantar Retail concluded “category management needs manufacturer leadership and shopper insights to evolve into a worthwhile process for retailers.” Their conclusion is that current category management is more tactical than strategic and category management requires links that result in real growth solutions and more holistic plans to address joint manufacturer and retailer business issues across the Path-to-Purchase.

The ultimate goal of category management to help manage similar sets of products or categories better with the end goal of driving profitable growth at retail and greater collaboration between trading partners remains a noble and necessary goal. E-commerce presents new challenges, a greater order of complexity and is layered on the older barriers of retailer/manufacturer lack of leadership. As e-commerce expands, manufacturers and e-tailers that get category management right will emerge as the best-of-breed organizations.