Category Management

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Aims

ECR – definitions, structure of model, ECR v QR

Category management

• Introduction, drivers

• Tesco structure

• Promotions

• Product introductions

• Store assortments

• Case study examples

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Efficient Consumer Response (ECR) – History

• Commenced in Europe in 1993, European Executive Board 1994

• Catalyst - rapid maturing of retail markets with squeeze on margins & pressure on contractors to ‘add value’

• Reducing total industry costs by 10%, or $30 billion in USA.

• Significant opportunity, as well as a competitive necessity.

• Grocery leaders recognised other retail channels had made better use of technology and strategic alliances

• Re-examination of all aspects of operations

• Backed by IGD, key blue chip companies & multiples

• Pilot studies commissioned (eg Coopers & Lybrand - estimated savings 6% turnover)

• Key efficiencies in replenishment, category management & standardisation of handling systems

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Different Levels of ECR

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ECR V Quick Response

• ECR builds on QR techniques but addresses issues beyond the

order cycle (eg new product introductions, item assortments and

promotions)

• ECR uses collaborative relationships; any combination of

retailer, wholesaler, broker and manufacturer work together to

seek out inefficiencies by looking at the net benefits for all

players.

• True efficiency comes only when overall costs are reduced for all

the parties in the relationship.

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Emerald

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ECR Improvement Concepts

EstablishInfrastructure

OptimiseIntroductions

OptimiseAssortments

OptimisePromotions

IntegratedSuppliers

SynchronisedProduction

ContinuousReplenishment

AutomatedStore Ordering

ReliableOperations

Cross-Docking

Electronic DataInterchange (EDI)

Electronic FundTransfer (EFT)

Item Coding &Database Maintenance

Activity-BasedCosting (ABC)

Category Management

Product Replenishment

Enabling Technologies

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IGD’s definition incorporates these elements:

"Category management is the strategic management of

product groups through trade partnerships, which aims to

maximise sales and profit by satisfying consumer needs."

Products are grouped to reflect consumers’ needs based on

how they are consumed or used or the means by which they

are purchased.

IGD defines a category as:

“A category is a group of products or services that

reflect consumer usage or purchase behaviour”

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Tesco: Four key areas

1. Range selection that meets consumer needs.

2. Merchandising that attracts customer attention and is easy to shop

3. Delivers financial targets whilst optimising space, and minimising stock inventory.

4. Effectively implemented in store

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Structure of Tesco – Category Management

Growth driven by targeted product ranges and new

developments; continual competition for space in store.

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•Retailers – reinforcing strategies, KPI’s across chain, improved

modelling of fluctuations in demand

•Suppliers – improving service levels and modelling promotions without

significant increases in stock

Source: IGD

Utilising CM levers to drive growth: store

assortments, product introductions, promotions,

Source: IGD Research

Integration of NPI into the SIOP Process

New to the world

New to us

Additional product lines

Product changes, and rationalisation

Cost reduction

Repositioning / delistment

Anticipated

Change in

Rate of

Sale

New ProductIntroductions

ExistingProducts

Time

What they have in common is that no forecasting system in the world can help you…

Product introductions – shorter life cycles,

pressures for innovations

Store Layout – Fresh & Easy

The layout that Tesco has chosen to roll-out at Fresh & Easy appears to

be highly uniform, with eight aisles in total and nine self-scan checkouts.

New territory for Wal-Mart

Wal-Mart’s lack of experience in small scale, fresh focused retailing.

This signifies a radical shift in thinking by Wal-Mart,

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Efficient Promotions

• Remove unnecessary costs by re-engineering promotional practices.

• Aligning supplier and distributor operations to retailer’s marketing strategy to support changes in demand.

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PlanogramsP1 P2 P

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P4 P

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P

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P

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P8 P9 P

1

0

P

1

1

P12 P13

A Trial

price

70p/can

Win World

Cup Tickets

Display

leaflet,

POS

10%

Price

Cut on

Multi-

pack

Link save

with

Walker’s

crisps

Xmas Club

Loyalty Points

–

100 points

B 3 for 2

on

Premium

Beers

10% Price

Reduction

C Launch

new

strength

trial

price

Loyalty

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15% Price

reduction

on multi-

pack

UK food and grocery promotion strategy

• UK grocery retailing has become significantly more

promotional in the last year

• The promotional mix has changed with the emphasis shifting

towards price reduction mechanics and away from BOGOFS

and multi-buys

• Retailers continue to employ a wide variety of promotions and

innovate with new offer types to target specific shopper

requirements

• These help to build the broader perception of value across the

offer

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Retailer v supplier promotion preferences

Supplier

• Standard packs

• Viable quantities

• Least impact on production

• Use excess capacity

Retailers

• Minimum administration

• Capacity impacts at store and warehouse23

Reading

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Collaborative Working

• Joint business planning.

• Shared data on consumers, sales and products.

• Retailer knowledge of customers, and purchasing behaviour.

• Supplier knowledge of who purchases, their wants, and behaviours.

• Mind-set change; suppliers focus on growth of wholecategory, including competitor brands,

• Combine knowledge and skills to provide ideal category offer at point of purchase

• Communication between managers at all supply chain levels

• Balance customer needs with commercial, financial and strategic objectives.

Challenges

• Poor data availability

• Labour intensive

• Poor in-store implementation and execution

• Openness and trust towards information

sharing

• Embed in daily processes

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Brand mapping

• Quantify how products are perceived by consumers; specific features or attributes.

• Statistical methodologies to create brand maps.

• Help to describe and a market or category

• Quantify segment and brands position in market

• Identify product strengths and weaknesses

• Highlights gaps and proliferation of products in market.

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Virtual stores – assist layout planning and e-retailing

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From project to process (eCM)

Marks & Spencer – promotions

Marks & Spencer has become highly promotional in the last few years

Building on its well developed ranges of ready meals, the company has been at the forefront of meal deal activity

Good fit with the secondary and occasion-based missions of many M&S shoppers

Improving pricing and promotion is one of the main goals of its food strategy, along with driving innovation and range development,

M & S: store layouts, product assortments

Improving the in-store environment targeted as a priority for M&S to deliver growth in.

Segmenting stores based on affluence, location, demographics and competitors.

Currently underutilised space in M&S food halls will be developed, enabling an increase of the number of food SKUs ‘full basket’ shop and continually add new products to the mix.

Cross-selling or ‘cross-presentation’ will be introduced to promote volume growth across different departments.

M & S : product introductions

During the first half M&S has continued its focus on innovation launching 940 lines and it remains on track to deliver its commitment to refresh 25% of its total food range this year.

M&S will deliver ‘innovation and inspiration’ to shoppers by promoting its strengths in:

1.Best of British – sourcing unique British products

2.Flavours of the World – this focus will build on the retailer’s strength in speciality.

3.Core lines – M&S will improve quality of its top 100

lines.

Pharmaceutical Industry

2 key segments:

• Branded – acquisitions, drugs under development, new products – eg Boots

• Generic – similar products, ‘followers’, increased competition eg Superdrug, Savers

Key differentiators:

• Packaging, labelling, support service

Superdrug – promotions

Superdrug price (and promotion) strategy uses four main levers to drive volumeand to build a strong relationship with the consumer:

– Superdrug operates an EDLP pricing policy, using the “Prices Permanently Squeezed” strap line.

– Ongoing promotions – a number of ‘standard’ price and multi-savepromotions in store, ranging from “2 for £”, price cuts and half price deals. Using the banner

– “Big Price Squeeze”. - popular brands used as volume drivers.

– “Massive stock clearance” promotions - Superdrug also uses stock clearances to sell a range of end of season products.

Superdrug aims to offer fewer promotions and more permanent price cuts led by the EDLP pricing policy.

Boots – product innovations and stores

A “simple” strategy : Boots’ is working to grow sales

through

• investment in stores

• NPD

• brand development

• price and service competitiveness

• Outlets feature a pharmacy, a similar number feature an in-store perfumery and all offer a film developing/printing service.

Source : Boots Annual Report 2003

Boots

Mini Mode Children’s Clothing New ‘re-launched’ Soltan brand

‘implants’ within retail storesMerchandising Best Practice

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